Energy Security and Economic Development in India : A Holistic Approach [1 ed.] 9788179935644, 9788179934609

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Energy Security and Economic Development in India A Holistic Approach Bala Bhaskar Energy is fundamental to the economic development of a society. Ensuring energy security is critical to the security, sovereignty, and well-being of any country. However, there is no consensus on the definition of energy security. Energy Security and Economic Development in India attempts to construct an appropriate definition for the concept of energy security. The evolution of energy security is traced at both the global level and in the Indian context. This book elaborates on the concept of energy security, highlights its linkages, enumerates India’s indigenous energy resources, examines the status of energy security in the country, and makes policy suggestions to ensure energy security in the country.

Energy Security and Economic Development in India A Holistic Approach Bala Bhaskar

Key Features • Extensive coverage of the various energy resources of India. • Unique focus on economic linkage between energy and economic growth. • Detailed description of the trends in India’s energy consumption, production, imports, and exports. • Discussion on energy efficiency and evaluation of energy-efficiency policies in vogue • Provision of policy suggestions to improve energy efficiency and conservation. • Analyses of the environmental impact of different sources of energy and longlasting, adverse implications of anthropogenic activities. • Succinct highlight on the importance of water in strategies to attain energy security. • Systematic analyses of pricing dynamics of various energy sources. • Elucidates the geopolitical dynamics and underpins the role of energy diplomacy in achieving energy security.

The Energy and Resources Institute

The Energy and Resources Institute

Energy Security and Economic Development in India

Energy Security and Economic Development in India A Holistic Approach

Bala Bhaskar

The Energy and Resources Institute

© The Energy and Resources Institute, 2013 First reprint 2013

ISBN 978-81-7993-460-9

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher. All export rights for this book vest exclusively with The Energy and Resources Institute (TERI). Unauthorized export is a violation of terms of sale and is subject to legal action.

Disclaimer The views expressed in this book are the author’s own and not those of the Government of India. Suggested citation Bhaskar B. 2013. Energy Security and Economic Development in India: a holistic approach. New Delhi: TERI

Published by The Energy and Resources Institute (TERI) TERI Press Tel. 2468 2100 or 4150 4900 Darbari Seth Block Fax 2468 2144 or 2468 2145 IHC Complex, Lodhi Road India +91 • Delhi (0)11 New Delhi – 110 003 E-mail [email protected] India Website www.teriin.org

Printed in India

Foreword I am happy that Dr Bala Bhaskar has addressed the issue of India’s energy security and economic development in this timely publication. India faces several challenges linked to its ambition of growing rapidly in proximity of a double-digit rate. This would require ensuring adequate supply of energy to fuel progress in every sector of the economy and arranging measures such that every household receives adequate supply of energy for the well-being of the country’s population. The problem of energy security has been of crucial importance in determining economic development and growth strategies across the world particularly since the oil price shock of 1973/74 when the global price of oil quadrupled in a short period of time. However, while efforts at improving the efficiency of energy use and moving towards substitutes for oil were pursued vigorously till the early 1980s, they were virtually given up in 1985 when oil prices crashed and reached record low levels. In 1985, The Johns Hopkins University Press brought out a book authored by me entitled The Political Economy of Global Energy. The main contents of this publication related to a country-by-country assessment of oil supply capacity among oil-exporting nations as against the global demand for oil. I reached the conclusion that oil prices were likely to go up in the 1980s. Actually, quite the reverse happened, largely because some countries, particularly Japan and part of Europe, succeeded in improving the efficiency of energy use and in moving towards substitutes for oil. These and other developments relieved the pressure on the global oil market, while the Organization of the Petroleum Exporting Countries (OPEC), as a result of several developments, lost control over the supply of oil and restrictions that had been agreed on among this grouping. The glut in the global oil market became a major determinant of lower oil prices, and with reduced revenues, the incentive for the members of OPEC for cheating on quotas became stronger, leading to further excess in supply. Energy security issues, of course, go beyond the security of oil supply, even though they may be a major driver of actions required

vi

Foreword

to enhance energy security. Essentially, a country would need to look at all forms of energy and policy initiatives that apply not only to the supply side but also on the demand side of the picture as well. In this context, improving the efficiency of energy use would be a critical element of policies to enhance energy security, including the establishment of energy-consuming infrastructure, which would ensure the avoidance of a lock-in to energy-intensive practices and activities. This book would undoubtedly give rise to a great deal of analysis and deliberations, which would lead to not only a better understanding of energy security issues but also actions by which the security of energy can be enhanced for the welfare of different societies across the globe. R K Pachauri, PhD Director-General, TERI

Preface Having hailed from a rural background, I was privy to some traditional and primordial forms of energy like the water wheel, biomass, firewood cooking, and kerosene lamps. As a child, I observed with curiosity how people in and around my village were dependent on these forms of energy. In my early career as a civil engineer in the government, I was associated with the implementation of some of the energy related development projects, particularly bio-energy projects undertaken by the government. Later, as a diplomat, I had an opportunity to serve for almost a decade in the Middle East, a citadel of hydrocarbons. My stint in this region further invoked my curiosity about the importance of energy, particularly in the geopolitical and geostrategic spheres. Since then, I have been striving to understand the dynamics of energy in human life. The questions I pondered are: How important is energy to human life? Does energy security mean the security from dependence on oil alone? What constitutes energy security? Is it the water wheel, kerosene lamp, biomass plant, windmill, oil or gas? As I moved forward in this arena, I was increasingly convinced that every form of energy is important in its own way, particularly in the Indian context. While energy is fundamental to the economic development of a society, ensuring energy security is critical to the security, sovereignty, and well-being of any country. However, I observed that there is no consensus on the definition of energy security. This book attempts to construct an appropriate definition of the concept of energy security; the evolution of energy security is traced at both the global level and in the Indian context. The basic question of whether energy security exists or not (in the arena of commercial energy) has also been studied through the time-series data using two indicators: energy security measures in terms of imports (ESIM) and energy security in terms of production (EISP).

viii

Preface

The general perception of energy security has remained identical with an adequate supply of oil though, in reality, there is a spectrum of energy resources used by mankind from time immemorial. However, resources other than oil have remained beyond general human perception, despite their usage in daily life. While energy is the “software of economic development”, a precise economic linkage between energy and economic growth is misplaced. Unless the cause and effect relationship between these two parameters is fully understood, it is difficult to evolve appropriate policies of energy security. This book seeks to find whether energy growth influences economic growth or vice versa (implying a unidirectional causal relationship) or both energy growth and economic growth influence each other (implying a bidirectional causal relationship) through econometric models using time series data from 1980–2010. In a developing country like India where a major portion of energy needs are met through imports, reducing this high dependence could significantly contribute to energy security. Unless we have robust data and thorough understanding of the entire array of domestic energy resources, it is not possible to evolve the strategies to curtail import dependency. Therefore, I have attempted a comprehensive analysis of India’s energy scenario in this book. Besides, several initiatives undertaken by the Government of India to reduce import dependency, through development of alternate sources of energy, have been highlighted in this book. An attempt has also been made to define energy efficiency, evaluate energy-efficiency policies in vogue, and provide actionable policy suggestions to improve energy efficiency and conservation. Attaining energy security at the cost of environmental degradation would be tantamount to denying social security to the present as well as future generations. It is likely that the quantum of emissions from varied energy sources will increase as energy consumption increases. Hence, the environmental impact of each energy source has been studied, and the long-lasting adverse implications of anthropogenic activities have been succinctly highlighted in this book. Water and energy have been mutually dependent since time immemorial. Linkages between energy and water systems have grown more complex and interdependent in modern society and economy. As technology developed, energy has become a crucial

Preface

ix

input for pumping water for various needs. Now, water has emerged as an essential element not only in generation of energy but also in exploration, processing, transportation and storage of various sources of energy. Huge quantity of water is required in electricity generation. Developing economies like India, which are already experiencing major water conflicts both within the country and at the regional level are more prone to this intricate interdependency of water and energy. Therefore, the importance of water in the strategies to attain energy security has been comprehensively detailed. Energy pricing plays a central role in securing energy security and enhancing the energy efficiency of an economy, as erroneous pricing mechanisms will not only hamper the gross domestic product (GDP) of the country but also lead to excessive or irrational use of energy resources, price monopoly, and black marketing. To get the right perspective, various pricing policies and mechanisms in vogue since independence have been studied in detail. The pricing dynamics of various energy sources have been systematically analysed for a greater understanding of the issues related to pricing, and suggestions on pricing have been made. Geopolitics and diplomacy have always played crucial role in acquiring energy supplies for any country. In a country like India where about 400 million people have no access to commercial energy, the impact of geopolitical dynamics is pervasive. At present, India is spending about 10% of its GDP on oil imports alone. At present, two-thirds of India’s imported oil comes from the Gulf region. However, the landscape of oil-producing countries is changing fast. New discoveries are mostly coming from countries not part of the Organization of Petroleum Exporting Countries (OPEC). Moreover, the new fossil fuel discoveries are increasingly unconventional oils and gases. Consequent to these developments, new geopolitical dynamics are evolving. While India has vast resources of coal, it is compelled to import both coking and non-coking coal for various reasons. During the 12th Plan, there is likely to be a shortage of 265 MT of coal. Despite major new natural gas discoveries in recent years, India is required to import natural gas. The geopolitics of gas is much more complicated than those of oil, as gas cannot be easily stored or transported over long distances compelling its supplies either through gas pipelines or through tankers in the form of liquefied natural

x

Preface

gas (LNG). Neighbouring countries like Pakistan, Afghanistan, and Bangladesh are poised to attain greater strategic importance just by providing transit facilities for gas pipelines. India has huge diplomatic challenges in negotiating gas supplies through pipelines. India has significant reserves of shale gas and thorium, but currently it does not possess appropriate technologies to explore them. It is also endowed with rich renewable resources, but it requires rare earth minerals/ right technologies to harness them. Moreover, the onset of new renewable technologies has thrown open new challenges in terms of standards and intellectual property rights. Energy diplomacy plays a key role in acquisitions of energy resources, setting up pipelines, technology transfer, evolving uniform standards and specifications. A complex diplomatic engagement both at bilateral and multilateral levels play significant role in achieving these objectives. Accordingly, the changing dynamics of geopolitics and the growing importance of energy diplomacy are also highlighted. The Integrated Energy Policy Report 2006 has contributed to major policy discussions in India on energy. In fact, it will probably remain the referral policy paper for years to come. However, the landscape of energy has been changing rapidly. The energy basket has been expanding at the global and national levels. Technological advancements are bringing forth new forms of energy. These dynamics have created compulsions to fine tuning this policy. A holistic approach is required taking into consideration all linkages of energy, such as proper assessment of domestic resources, causal relationship between energy and economy, study of past trends for future projections, water and energy, energy pricing, energy and environment, energy efficiency and conservation, and geopolitics of energy diplomacy. A comprehensive sectoral strategy is developed on each source of energy right from acquisitions to distribution, in this book. In sum, the purpose of this book is to contribute to enriching the literature on energy security by elaborating and improving the understanding of the concept of energy security, to highlight its linkages, enumerate India’s indigenous energy resources, create greater awareness on issues relating to energy security, examine its status in India, and make policy suggestions to ensure energy security. Inspired by the enormous strategic importance of the topic,

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xi

I have made a humble effort to unravel the complex story of energy and its development. I look forward to a critique of this book; it would enhance my understanding and my further contribution to literature on energy security given the fast changing dynamics of the energy sources, technology development and shifting demand patterns.

Acknowledgements Countless people have helped me during my long years of work on this book. Foremost among them is Dr G Ramakrishna, Professor of Economics, Osmania University, Hyderabad. I was able to keep abreast on the topic of econometric models with his help and guidance. I am greatly indebted to Dr D Subbarao, Governor, Reserve Bank of India, who inspired me to undertake studies on energy economics. I deeply owe Ambassador Arun K Singh, who impressed upon me the need to acquire specialized knowledge particularly in emerging areas like energy. I am thankful to Dr R K Pachauri, Director-General, TERI, for his support and encouragement in the publication of this book. I convey my special gratitude to Ambassador Talmiz Ahmad and Ambassador Sanjay Singh for invoking in me a curiosity on the Middle East and encouraged me to write this book. My gratitude to Dr P Pulla Rao, a distinguished scholar and journalist, without whose support this book could not have taken shape. I am particularly grateful to Mr Raghava Reddy, a passionate student of energy, who gave me deep insight into the subject matter and assisted in collection of data. I am thankful to Dr Venkata Ramana from the World Bank; he gave invaluable support in developing the framework of the book. I am especially grateful to my closest family friends, Mr Subash Namburu and M. Ramaswamy Venkat Ramana, who provided significant support in data collection for this book. My profound regards to Mr V S Senthil, Minister in the Embassy of India, Washington, DC, who helped in expanding the scope of this book, particularly with regard to energy policies in India. My deepest gratitude also goes to Mr Ismail Ali Khan, Advisor, Planning Commission of India, who spent several days discussing energyrelated issues with me. I am also grateful to three of my esteemed colleagues, Mr K Raju, Mr Sutirtha Bhattacharya, and Dr Ravi Kota from the Indian Administrative Service who have given valuable support during the development of this book; Mr Raju helped in analyzing the policy perspectives, while Mr Bhattacharya provided great insights into operational aspects of energy, particularly relating to transmission, distribution and energy efficiency.

xiv

Acknowledgements

Several of my esteemed colleagues from the Indian Foreign Service encouraged me in studying this subject. They include Ambassador R Swaminathan, Ambassador N Parthasarathi, Ambassador M Manimekalai, Ambassador Ravi Thapar, Mr Syed Akbaruddin, Dr B M Vinod Kumar, Mr Dammu Ravi, Dr Virander Kumar Paul, Mr P Kumaran, Mr B N Reddy, Mr Sunjay Sudhir, and Ms Gloria Gangte. I am also greatly indebted to Mr Naveen Monga and Mr David Raja who painstakingly waded through several drafts of the book and gave valuable suggestions in refining its content. I also wish to express my gratitude to the editors at TERI—Ms Yoofisaca S Nongpluh and Mr Arun K Paul—for their invaluable editorial support in shaping this book. Ms Yoofisaca has shown tremendous patience in responding to my innumerable queries. My special gratitude to Mr Sriram Malyadri, Dr T S Rasool Saheb, Engineer T Siddhardha Reddy, Engineer T Prabhakar Rao, Mr B Srinivas, Mr M N B Raju, Mr R Koteswara Rao, Mr D Raghu Rami Reddy, Dr K Prabhakar, Mr V Madhava Rao, and Mr Ch. Narasimha Reddy who encouraged me to undertake this challenging task. I also owe my eldest brother, Mr Chandraiah Boddu, and and my sister-in-law, Mrs Jayanthi Chandraiah Boddu, for their profound affection and encouragement. I am also indebted to my other brothers Mr Singiah Boddu, Mr Aseervadam Boddu, Mr Krishna Murthy Boddu, and Mr Udaya Bhaskar Boddu, and my sisters-in-law for their encouragement and moral support. I owe the greatest debt to my wife, Mrs Kavitha Bhaskar Boddu; son, Anudeep Bhaskar Boddu; and daughter, Anulekha Bhaskar Boddu, who supported me through the years I dealt with the subject of energy. I wanted to give up this initiative several times, but Kavitha’s countenance sustained my interest in achieving this goal. My son Anudeep has given valuable suggestions on graphs and tables, which have added luster to this book. My daughter Anulekha is my greatest inspiration and the best critic of all my endeavours. Finally, I am eternally indebted to my beloved parents, late Mr Malakondiah Boddu and Mrs Chinnamma Boddu whose blessings and aspirations shaped my career, and with all my humility, I dedicate this book to them.

Contents Foreword Preface Acknowledgements

v vii xiii

1. Introduction Evolution of Energy Security India’s Energy Scenario Evolution of Energy Security Policies in India Notes

1 1 5 13 16

2. India’s Energy Resources Classification of Energy Resources Lignite Hydrocarbons Power Sector Renewable Energy Notes

19 19 28 29 42 53 89

3. Trends in India’s Energy Sector: Elasticity and Growth Dummy-variable Approach Trends in Energy Consumption of Major Sources of Energy Trends in Total Energy Consumption, Production, and Imports Total Energy Production in India Energy Imports in India Trends in Energy Security Trends in Energy Elasticity and Efficiency in India Energy Elasticities of Different Sources of Energy

93 94 95 97 97 98 98 99 99

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Contents

Energy Elasticity, Energy Growth, and Economic Growth Notes

101 102

4. Causality between India’s Energy Consumption and GDP 103 Granger Causality Test 104 Vector Error Correction Model 105 Notes 112 5. Energy Efficiency and Conservation Energy Efficiency Indicators Energy Efficiency Policies Evaluation of Energy Efficiency Measures in India Energy in the Building Sector Appliances and Equipment Lighting Transport Sector Industry Power Sector Energy Conservation Notes

113 116 116 117 120 123 124 125 126 128 129 132

6. Energy and Environment Coal Hydrocarbons Residential Sector Fugitive Emissions Nuclear Energy Hydropower Geothermal Energy Urban Waste Solar Energy Bioenergy Wind Energy Data Collection of Emissions and Climate Change Assessment Action Plan on Climate Change Notes

135 137 140 144 145 145 147 147 148 148 148 149 149 150 153

Contents

xvii

7. Water for Energy Coal and Lignite Oil Supply Natural Gas Supply and Gas Hydrates Nuclear Power Supply Hydropower Supply Renewable Energy Transportation Sector Notes

155 156 156 156 157 159 161 163 163

8. Energy Pricing Evolution of Pricing Mechanism for Oil and Petroleum Products Evolution of Coal Pricing in India Evolution of Electricity Pricing Mechanism Pricing of Renewable Energy Notes

165

9. Geopolitics and Energy Diplomacy Reserves Unconventional Oils Gas-to-liquids Geopolitics of Gas Shale Gas Revolution and Energy Diplomacy Geopolitics of Coal Geopolitical Dynamics in Latin America and Caribbean Countries Geopolitics of Renewable Energy Resources: Diplomacy for Technology Notes

207 212 214 219 219 228 231

10. Policy Framework Need for a Holistic Approach Comprehensive Sectoral Energy Policy Smart Grid for Intelligent Management of Power Coal Hydrocarbons

243 243 246 252 253 255

168 180 188 202 204

235 236 240

xviii Contents

Kerosene Natural Gas Gas Hydrates Nuclear Power Hydropower Wind Solar Energy Biomass Geothermal Biofuels Annexures Bibliography Index About the Author

257 258 259 259 260 261 261 262 262 263 269 317 343 355

1 Introduction EVOLUTION OF ENERGY SECURITY Energy has played a fundamental role in the evolution of human civilization. Sunshine and water were the primordial sources of energy for humans. Since sunshine was, by and large, universal, proximity to water translated into energy security and played a critical role in the evolution of nomadic behaviour and human settlement. As time passed, with the growing complexities of human life and the interdependent populations in the modern world, the concept of security—be it for food, economy, society, energy or nation—has undergone major transformation. During World War II, the direct connection between energy security and national security became clear when Winston Churchill, the First Lord of the Admiralty, in his first tenure at Whitehall made a historic decision to shift the power source of Great Britain’s naval ships from coal to oil1 to gain a significant military advantage over German ships, which were powered by coal, as oil is more energy efficient than coal. It has been proved that one gram of coal contains 25 kJ of energy, while the same quantity of oil contains 45 kJ. Since then, energy security has become an integral part of a state’s national security strategy. Subsequently, several battles fought during World War II and later were directly or indirectly related to issues pertaining to energy security. The end of World War II and the consequent need for reconstruction brought about a phenomenal increase in the demand for oil. Apart from its key role in the transportation sector, oil became an integral part of other key economic sectors as well.

2

Energy Security and Economic Development in India

However, in the real sense, the energy situation rose to the top of the global agenda in 1973. The oil crisis of 1973/74 had a far-reaching impact on the international economy. Consequent to the eruption of the Arab–Israeli war on 6 October 1973, the oil ministers of the six Persian Gulf members of the Organization of Petroleum Exporting Countries (OPEC) decided to raise the posted price by 70% on 16 October 1973. As a result, the price per barrel of crude oil increased from $3.00 to $5.11. Again, on 1 January 1974, OPEC doubled the oil prices. By the end of 1974, the price had quadrupled to $12.00. This fourfold increase in OPEC oil prices during 1973/74 reinforced the overall importance of energy in international trade. In 1974, trade in petroleum products exceeded $100 billion (Table 1), accounting for more than 15% of the total value of global trade. The hike in oil prices placed severe stress on international financial institutions and on countries whose economies were dependent on oil imports. Being the largest importer of crude oil (Table 1) in 1974, USA convened an energy conference in Washington, DC, in response to the tightly controlled oil market. The International Energy Agency (IEA), as a nodal agency for ensuring global energy security, was formed in November 1974. Thus, the prevailing international energy security arrangement in which USA undertook the lead was the fallout and response to the 1973 Arab oil embargo and the subsequent oil shocks. However, there had been no consensus on the definition of energy security. Different people defined it differently. Yergin defined energy security as “the security and integrity of the world supply chain and infrastructure, from production to the consumer”. Clawson defined it as “a continuous access of energy sources to the consumer at reasonable prices to support the economic and commercial activities Table 1 Largest oil importers (expenditure on oil imports) in 1974 Country

Amount ($ billion)

USA

24.0

Japan

18.0

West Germany

11.3

France

9.5

United Kingdom

8.5

Italy

7.5

Source Willrich, M. 1975. Energy and World Politics. New York: Free Press

Introduction

3

necessary for the sustained growth of the economy”. Dr A P J Abdul Kalam, renowned scientist and former president of India, defined energy security in 2005 as “ensuring that our country can supply lifeline energy to all its citizens, at affordable costs at all times”.2 The Planning Commission of India defined it in 2006 as “we are energy secure when we can supply lifeline energy to all our citizens irrespective of their ability to pay for it as well as meet their effective demand for safe and convenient energy to satisfy their various needs at competitive prices, at all times and with a prescribed confidence level considering shocks and disruptions that can be reasonably expected”.3 Since then, however, there have been a plethora of changes in the international arena, necessitating the expansion of the concept of energy security. The global interdependence of energy trade has grown manifold. The IEA consists of only 26 industrialized countries, but globalization of energy security would demand an immediate expansion of IEA membership and inclusion of developing countries, which are growing economies with a high demand for energy sources. Inclusive economic growth and development and the provision of accessible energy resources to a wide cross section of society have become national priorities of the developing world. The global energy basket has been expanding rapidly, so that energy security concerns are no longer limited to oil. The prominent place of liquefied natural gas (LNG) in the energy mix has created new dynamics in the global energy trade. The development of crossborder, long-distance, and transnational pipelines has become crucial in the energy supply chain. The physical security of these resources and the protection of transport routes, pipelines, trade routes, and other infrastructure have thrown up greater challenges in view of the increased competition and trade in energy. Ensuring their safety requires increased international cooperation between energy producers, traders, and consumers. Critical choke points along sea routes like the Strait of Hormuz, the Bosporus Strait, the Suez Canal, the Bab-el-Mandeb Strait, and the Strait of Malacca have particularly become vulnerable due to geopolitical dynamics, wars, military conflicts, and extremist threats.

4

Energy Security and Economic Development in India

The Strait of Hormuz separates the Persian Gulf from the Indian Ocean. The Malacca Strait—the 500 mile-long, narrow, and constricted passage between Malaysia and Sumatra—branches out from the Indian Ocean, curves up around Singapore, and passes through the open waters of the South China Sea. At its narrowest, it is only 40 miles in width. About 14 million barrels per day (mbpd) pass through this waterway, as do two-thirds the internationally traded LNG and half of the world trade. Some 80% of Japan’s and South Korea’s oil and about 40% of China’s total supply traverse the strait. Another key choke point is the Bosporus Strait, just 19 miles long, a little over 2 miles at its widest, and a half mile at its narrowest, connecting the Black Sea to the Sea of Marmara and into the Mediterranean. Every day, more than three million barrels of Russian and Central Asian oil pass through it, right down through the middle of Istanbul. Two other critical choke points are both in the Middle East: the Bab-el-Mandeb Strait, which provides entrance at the bottom of the Red Sea between Yemen and Somalia for up to 3 mbpd; and the 100 mile-long Suez Canal and Sumed Pipeline, which together connect the top of the Red Sea to the Mediterranean and through which about 2 mbpd of oil and major shipments of LNG pass. There is also the Panama Canal, with 0.6 mbpd. The 1956 Suez crisis, which triggered an invasion by Britain and France along with Israel, resulted in the closure of the Suez Canal and created severe oil shortage for Europe. During this conflict, 40 ships were sunk, blocking the canal through which 1.5 mbpd of oil were transported.4 The 1978/79 Iranian Revolution followed by the eight-year Iran–Iraq war injected a worldwide panic in the petroleum market. This resulted in the sustained oil price rise during the 1980s. Saddam Hussein’s 1990 invasion of Kuwait set off the Gulf crisis, leading to the loss of 5 mbpd of supply from Iraq and Kuwait. Again, USA-led attack on Iraq in 2003 resulted in the shutdown of its oil industry and contributed to another subsequent price rise. Another important development is the globalization of trade and investments. There has to be an uninterrupted flow of investment and technology to discover, develop, and exploit new resources. In 2005, the IEA estimated that as much as $17 trillion would be required for new energy development in the next 25 years.5 Accordingly, a new global investment regime has to be developed.

Introduction

5

More recently, new risks have surfaced from the open seas, particularly in the area around the Horn of Africa, the Gulf of Aden, which leads to Bab-el-Mandeb Strait, and the western waters of India, south of the Arabian Peninsula, have become new territories for piracy. These developments have thrown up new challenges of maritime safety and security. Besides, there are gross inequalities in energy distribution. Eighty per cent of the world’s population lives in developing countries, but their energy consumption amounts to only 40% of the world’s total energy consumption. This is an unpleasant but stark reality of the energy situation. The high energy consumption levels are attributed to the high standards of living in developed countries. Also, the rapid population growth in the developing countries has kept the per capita energy consumption low compared to that in developed countries. The world’s average energy consumption per person is equivalent to 2.2 tonnes of coal. Industrialized countries consume four to five times more than the world average and nine times more than the average for developing countries. Moreover, there has been a perception that in the quest to secure energy supplies, other securities paramount to mankind—like national security, social security, and cultural security—have been severely compromised. There are also concerns that environmental considerations have been grossly compromised in pursuit of energy needs. In view of these changing dynamics, there is a need to broaden the definition of energy security. Accordingly, energy security may be defined as the continuous availability of energy in varied forms, in sufficient quantities, and at reasonable prices without causing hindrance to other securities like social security, food security, and national security of other countries and without detrimental effects on the environment. However, within this broad framework, each country should define the parameters of its energy security depending on its own energy resources and requirements. This book examines the energy security issues in India in this international context.

INDIA’S ENERGY SCENARIO India faces daunting challenges in meeting its energy needs and providing adequate energy of the desired quality in various forms in a sustainable manner and at competitive prices in view of its

6

Energy Security and Economic Development in India

rapid economic growth. For example, India’s economic growth rate, which was 5.8% in 1991, increased to 8.6% in 2010/11. In this year, India consumed an estimated 164.32 million tonnes of oil equivalent (MTOE). India needs to sustain 8%–10% economic growth rate over the next 25 years to eradicate poverty and meet its human development indices.6 There is a high correlation between energy consumption and economic growth. The per capita consumption energy in developed economies is much higher than that in developing countries. For instance, for each person in USA, energy consumption is 10 times higher than that in India. Even in the Indian context, it is seen (Figure 1) that energy consumption is proportionately increasing with economic growth. Poverty remains a huge challenge for India. Poverty alleviation programmes need to be supplemented with improved access to cleaner, more efficient cooking fuels and technologies. There are still 412 million people estimated to be without access to commercial energy.7 Around 668 million of India’s population use traditional fuels such as dung, agricultural wastes, and firewood for cooking food. These fuels cause indoor pollution. The 1999/2000 55th round of the National Sample Survey (NSS) revealed that for 86% of rural households, the primary source of cooking energy was firewood and woodchips or

GDP per capita ($) 3000 2500

GDP per capita electricity consumption (kWh) 140

GDP per capita Electricity consumption

2000

120 100 80

1500 60 1000

40

500

20

0

0 2000 2001 2002 2003 2004 2005 2006 2007 Year

Figure 1 Trends in economic growth and electricity consumption in India Source World Bank. 2010. Energy Poverty in Rural and Urban India: are the energy poor also income poor. Washington, DC: World Bank

Introduction

7

dung cakes. In urban areas as well, more than 20% of all households relied mainly on firewood and woodchips. Only 5% of the households in rural areas and 44% in urban areas used liquefied petroleum gas (LPG). Kerosene was used by 22% of urban households and 2.7% of rural households. Other primary sources of cooking energy used by urban and rural households include coke, charcoal, gobar gas (cow dung gas), and electricity. The use of traditional fuels for cooking with the attendant pollution and cost of gathering fuel sources imposes a heavy burden on people, particularly women. Lack of access to clean and convenient sources of energy affect the health of women and girls disproportionately, as they spend more time indoors and are primarily responsible for cooking. This is worsened by barriers like illiteracy, lack of information, and training. According to the World Health Organization (WHO), the use of fuelwood and dung for cooking and heating causes over 400 000 premature deaths, mostly of women and children, in India annually.8 The quantities of traditional fuels used are substantial. Biomass-based fuels dominate in rural areas, where they are used by households in all consumer expenditure categories. It is estimated that in rural parts of northern India, 30 billion hours are spent in gathering fuelwood and other traditional fuels annually. Thus, the economic burden of traditional fuels is estimated to be around `300 billion.9 This implies that even with economic growth and rising incomes in rural areas, it will be a Herculean task to bring about a rapid shift in the usage of energy resources. Moreover, once access to energy is extended, the growth potential for its demand will be enormous. An energy policy that seeks to be responsive to social welfare must address this fact. Although primary energy consumption has increased significantly in absolute terms, India’s per capita consumption of energy continues to be lower than many emerging economies. It is just 4% of USA and 20% of the world average. The per capita consumption is likely to grow with economic growth in India, thereby increasing the demand for energy. Energy intensity, which is energy consumption per unit of gross domestic product (GDP), broadly indicates the development stage of the country. India’s energy intensity is 3.7 times that of Japan, 1.55 times of USA, 1.47 times of Asia, and 1.5 times that of the

8

Energy Security and Economic Development in India

world average.10 India needs to reduce its energy intensity through technological upgrade, energy efficiency, and conservation. Besides, the gap between energy production and consumption in India is rising, thereby posing serious challenges for policymakers. India accounts for 2.4% of the world’s total annual energy production, but consumes about 3.3% of the world’s total annual energy. This imbalance has been growing and the various subsectors of energy are reflecting a similar situation. India’s total consumption of energy is 522.81 MTOE, which is more than its energy production of 431.84 MTOE, thereby needing to import 36.53% of India’s total energy requirement (Table 2). India’s oil imports were 76.4% out of its total requirement of 164.32 MTOE. By the end of the Twelfth Five-year Plan, it may have to import 80% of its oil requirement of 204.80 MTOE. Despite being the major producer of coal in the world, India had to import 19.8% of its requirements in 2010/11. Such imports may increase further, up to 22.1% by the end of the Twelfth Five-year Plan. Despite the Table 2

Projected primary commercial energy requirement

Fuel

Oil Natural gas and LNG

2010/11* Consumption (MTOE)

Imports (MTOE)

164.32

125.5 (76.4%)

2016/17# Consumption (MTOE)

Imports (MTOE)

204.80

164.8 (80.5%) 24.8 (28.4%)

57.99

10.99 (19%)

87.22

272.86

54 (19.8%)

406.78

90 (22.1%)

Hydro

10.31

0.48 (4.6%)

14.85

0.52 (3.5%)

Lignite

9.52

—

14.00

—

Nuclear

6.86

—

9.14

—

Renewables

0.95

—

1.29

—

Coal

Total energy

522.81

—

738.07

—

Total imports

190.97

—

280.12

—

36.53

—

37.95

—

Percentage of total energy

* Provisional data #   On the assumption that annual demand/growth would be 6.5% up to 2016/17. The figures include the use of oil and gas feed stock for fertilizer and other non-energy usage. Source Planning Commission. 2010. Mid-term Appraisal for Eleventh Five-year Plan

(2007–12). New Delhi: Planning Commission

Introduction

9

best efforts, its share of renewable energy is only 0.95 MTOE and is expected to be around 1.29 MTOE at the end of the Twelfth Fiveyear Plan. Although there has been dramatic increase of domestic production of gas, the gap between the production and consumption is widening, compelling India to resort to increased imports. There are several anomalies in pricing, import infrastructure and transmission related issues. Among renewable energy sources, only targets in wind energy have been close in the Eleventh Five-year Plan. The progress in other forms of renewable energy sources has been tardy (Table 3). There has not been much progress in the domestic exploration/ capacity addition. Although the target of oil production in the Eleventh Plan was 206.73 million tonnes (MT), the actual production was estimated to be 42.88 MT by the end of the plan period (Table 4). Although the projection of gas production in the Eleventh Plan was 255.76 billion cubic metres (BCM), the actual production is expected to be 68.02 BCM. However, India’s leading position in refining capacity is sustained by reaching the target of 240.96 MT in the Eleventh Fiveyear Plan. The demand–supply gap of coal, which contributes to 50% of our energy needs, has been widening consistently. In the terminal year of the Twelfth Five-year Plan (that is, 2017), the shortage of coal will be 265 MT. Such a scenario is expected to continue in years to come. Table 3

Progress of renewable energy programme

Programme

Eleventh Plan target

Achievement (as on 31 January 2010)

Wind power

10 500

3 857

9 000

Small hydro

1 400

620

1 000

Bio-power

1 700

1 026

1 700

400

20

79

Solar

—

3

50

Total

14 000

5 526

11 829

Waste-to-power

Anticipated achievement (at the end of Eleventh Plan)

Source Planning Commission. 2010. Mid-term Appraisal for Eleventh Five-year Plan

(2007–12). New Delhi: Planning Commission

10

Energy Security and Economic Development in India

Table 4 Physical performance of the petroleum and natural gas sectors Item

Eleventh Actual Actual Projected Plan 2007/08 2008/09 2009/10 2010/11 2011/12 target

Total anticipated in the Eleventh Plan

Crude oil 206.73 production (MT)

34.13

33.51

35.95

40.40

42.88

186.86

ONGC

140.06

25.94

25.37

25.76

25.43

26.58

129.08

OIL

18.99

3.10

3.47

3.57

3.65

4.3

18.09

PVT JVC

47.71

5.08

4.67

6.62

11.32

12.00

39.69

Gas 255.76 production (BCM)

32.39

32.85

50.24

60.02

68.02

243.52

ONGC

112.39

33.22

22.49

22.29

21.48

25.16

113.76

16.43

2.34

2.27

2.51

2.62

3.56

13.30

PVT JVC

126.45

7.72

8.09

25.43

35.92

39.30

116.46

Refining capacity (MT)

240.96

148.97

177.97

210.97

225.87

255.83

255.83

OIL

BCM – billion cubic metres; MT – million tonnes; OIL – Oil India Ltd; ONGC – Oil and Natural Gas Corporation; PVT JVC – private joint venture corporation Source Planning Commission. 2010. Mid-term Appraisal for Eleventh Five-year Plan

(2007–12). New Delhi: Planning Commission

The demand for commercial energy has increased substantially in India. Table 5 depicts the commercial energy consumption in the country, by sector, for the past 25 years. From Table 5, it is evident that commercial energy consumption has increased 3.2 times between 1980/81 and 2006/07 with 6.2% increase during 2006/07 as compared to 2005/06. While the industrial sector continues to be the largest consumer of commercial energy, its share declined from 54% in 1980/81 to 45% in 2006/07. The share of the transport sector also declined from 25% to 18% during this period. On the other hand, the share of agriculture increased from 2.33% to 7.3% and that of the residential and commercial sectors from 8% to 15%, during the same period. Added to these, energy prices in India are heavily subsidized. LPG and kerosene subsidies impose an additional burden on energy

Introduction

Table 5

11

Final commercial energy consumption in India, by sector

Sector Agriculture

1980/81 1985/86 1990/91 1995/96 2000/01 2005/06 2006/07 1.6

2.4

4.9

8.4

15.2

15.1

16.8

Industry

36.9

49.2

62.9

77.5

77.4

96.2

102.9

Transport

17.4

21.7

28.0

37.2

33.5

36.5

40.3

Residential and commercial

5.6

8.9

12.6

15.3

24.1

32.6

35.0

Other energy uses

1.9

2.7

3.9

6.8

13.4

18.7

16.5

Non-energy uses

5.3

7.9

12.6

14.1

28.0

17.5

18.4

68.7

92.8

124.9

159.3

191.6

216.5

229.9

Total

Sources 1. TERI (The Energy and Resources Institute). Various years. The Energy Data Directory and Yearbook. New Delhi: TERI 2. MoPNG (Ministry of Petroleum and Natural Gas). 2008. Indian Petroleum and Natural Gas Statistics 2006/07. New Delhi: MoPNG, Government of India 3. MoC (Ministry of Coal). 2008. Coal Directory 2006/07. New Delhi: MoC

baggage. There are several anomalies in the public distribution system that allegedly favour richer households. To maintain this sustained growth rate and meet the lifeline energy needs of all citizens, India needs to enlarge its primary energy supply to three or four times the present amount by 2031/32 and its electricity generation capacity/ supply to five to six times the 2003/04 levels. With 2003/04 as the base, India’s commercial energy supply should grow from 5.2% to 6.1% per annum, while its total primary energy supply should grow at 4.3% to 5.1% annually. These parameters indicate serious challenges to India’s energy security. The achievements in the power sector have been impressive for the last five years. The annual growth in electricity generation during the year has been 5.55%, against the compound annual growth rate (CAGR) of 5.17% during 2001/02 to 2010/11. Electricity generation increased from 617.5 billion units (BU) in 2009/10 to 811.1 BU, which was 97.63% of the target (Table 6). The energy and peaking shortages pegged at 10% and 13%, respectively, at the beginning of Eleventh Plan have come down to 7.5% and 10% correspondingly in March 2011. Similarly, in 2010/11, the energy shortage was 3.67%, while the peak shortage was 7.2%. The overall plant load factor (PLF) of thermal power stations in

12

Energy Security and Economic Development in India

Table 6 Annual electric energy generation targets and achievements Category Target 2010/11 (BU)

Actual 2010/11 (BU)

Percentage Actual in of target (BU) 2009/10

Growth (%)

Thermal

690.9

664.9

96.24

640.5

3.81

Nuclear

22.0

26.3

119.48

18.6

41.04

111.4

114.3

102.64

103.9

10.01

6.5

5.6

85.68

5.4

4.69

830.8

811.1

97.63

768.4

5.55

Hydro Bhutan import Total

Source CEA (Central Electricity Authority). 2012. Operation Performance of Generating Stations in the Country during the Year 2010-11: an overview. New Delhi: CEA

India improved significantly from 73.6% in 2005/06 to 77.5% during 2009/10. The PLF of gas-based plants fell considerably from 77.29% in April 2010 to 58.7% by November 2010.11 Nuclear generation achieved a remarkable growth rate of 41.04% due to improved availability of nuclear fuel to nuclear plants. Capacity addition of over 19 000 MW is expected in the private sector during the present plan, which is nearly 10 times the capacity added to the private sector in the Tenth Fiveyear Plan. The share of the private sector is expected to increase to above 50% in the Twelfth Five-year Plan. Although the target of 78 700 MW for the Eleventh Five-year Plan could not be fully achieved, the actual estimated capacity addition in the Eleventh Five-year Plan is 62 374 MW, which is more than the total capacity addition of the Eighth, Ninth, and Tenth plans (Table 7). A capacity addition of 100 000 MW has been projected in the Twelfth Five-year Plan. Under the Rajiv Gandhi Grameen Vidyutikaran Yojana, 98 841 unelectrified villages were electrified and 212 670 villages were intensively electrified.12 Table 7 Sectoral share of capacity addition, by plan Sector

Eighth Plan

Ninth Plan

Tenth Plan

Central

8 157

4 504

12 165

21 222

State

6 835

9 050

6 244

21 355

Private

1 430

5 061

2 671

19 797

16 422

19 015

21 080

62 374

Total

Eleventh Plan

Source Planning Commission. 2012. Draft Approach Paper for the Twelfth Five-year Plan 2012–17. New Delhi: Planning Commission

Introduction

13

Despite all these achievements, India faces a severe electricity shortage. Around 100 000 villages are yet to be given access to electricity. Despite the Hydro Policy 2008, only 30% of the hydropower could be harnessed, against the estimated potential of 150 000 MW.13 Although the Jawaharlal Nehru Solar Mission was made operational, only 1000 MW could be added so far. This sector has been facing major problems like environment and forest clearances, development of infrastructure (roads and highways), land acquisition, rehabilitation and resettlement issues, security clearance, availability of hydrological data to private developers, power evacuation, storage project versus run-of-river (RoR) projects, and long-term financing. The growth of thermal generation was mainly restricted due to coal shortages. The gap between the supply and demand of coal, which is the key input in electricity generation, is expected to be 265 MT in the terminal year of the Twelfth Plan.14 Of the major initiatives of setting up 16 ultra-mega power projects, each valued at `225 000 million, the bidding for only four projects has been completed so far. While it is noteworthy that the intensity of emissions of India’s GDP has declined by more than 30% during 1994–2007, the quantity of greenhouse gas (GHG) emissions is likely to increase due to the exponential growth of energy in the backdrop of sustained economic growth. According to the Indian Network for Climate Change Assessment (INCCA),15 the total GHG emissions in India in 2007 were 1727.71 MT of CO2-equivalent. Out of this, the energy sector emitted 1100.06 MT of CO2-equivalent, of which 992.84 MT were emitted as CO2, 4.27 MT was CH4, and 0.057 MT was N2O. It is a major challenge to contain these emissions in the energy sector. The impact of free electricity, which is increasingly becoming an attractive instrument in electoral politics, is looming large to inflict a serious dent in India’s efforts to achieving energy security. Figure 2 shows the percentage share of various energy sources and their growth rate in 2010/11.

EVOLUTION OF ENERGY SECURITY POLICIES IN INDIA The critical gravity of energy was recognized in the Sixth Five-year Plan, when it was recognized as a separate entity. Earlier, it was part of “mineral and oil”, which was first listed in the Second Five-year Plan. Realizing the importance of energy security, major oil export

14

Energy Security and Economic Development in India

Bhutan import 5.6 BU (0.7%)

Hydro 114.4 BU (14.1%) Nuclear 26.3 BU (3.2%) Diesel 3 BU (0.4%) Multi-fuel 2.5 BU (0.3%) Gas 97.8 BU (12.1%)

Lignite 26.4 BU (3.3%) Percentage growth Coal 3.99% Lignite 6.59% Gas 10.85% Multi-fuel 70.28% Diesel 25.69% Nuclear 41.04% Hydro 10.01% Bhutan import 4.69%

Figure 2 Energy generation by fuel, percentage share in the overall generation, and growth rate in 2010/11 Sources 1. CEA (Central Electricity Authority). 2012. Operation Performance of Generating Stations in the Country during the Year 2010-11: an overview. New Delhi: CEA 2. Clawson P L. 1995. Energy and National Security in 21st Century. Washington, DC: National Defense University Press

conglomerates Esso and Burma Shell, Caltex and IBP were nationalized during 1974–76. In tune with the policy changes, nationalization was not only the result of the recognition of energy security problems but also a political imperative at the time. Consequent to another oil crisis in 1979, Oil India Limited was nationalized in 1981. The Kuwait War of 1990/91 brought the inflation rate to 13% in India. High oil price was one of the reasons for the import burden that affected the balance of payments (BOP). As a result, foreign exchange reserves in India declined to $1 billion. Due to these developments compounded by stagnant domestic economic scenario, India was forced to liberalize its economy. As part of its liberalization, the government decided to open the exploration and production sector to private investments. In 1993, the Oil and Natural Gas Commission

Introduction

15

was established. Although it existed before, it was made a corporation in 1994 as a publicly held private company. In 1997, the government introduced the New Exploration Licensing Policy (NELP) to stimulate greater private sector participation. During 1999/2000, dismantling of the Administrative Pricing Mechanism (APM) in the petroleum sector was started, and by 2002, it was partially dismantled. About 30 oil and gas discoveries have been made since the NELP was adopted. The most significant was the Reliance–Niko Consortium’s discovery of almost 10 trillion cubic feet (TCF) (283 BCM) of reclaimable gas reserves in late 2002 in the Krishna–Godavari Basin in Andhra Pradesh on the east coast.16 Since then, several more discoveries have been made in the same basin and expectations are high that a second discovery of this magnitude will be made. The largest oil finding was by Cairn Energy in Mangala, Rajasthan, in 2003. It is reckoned to have about 350 million barrels of oil.17 Production began in December 2009 and is expected to be ramped up to 175 000 mbpd by 2012. Private sector, public sector, or private–public sector joint ventures control 14% of oil exploration and production and more than one-fifth of India’s natural gas production. To further augment its energy security, India formulated “India Hydrocarbon Vision 2025” in 2000.18 This vision endeavoured not only to increase its domestic production, but also aimed at securing the supply of external energy sources. In February 2006, the Rangarajan Committee, in its report on pricing and taxation of petroleum products in India, made three broad proposals relating to: (1) pricing model adopted by oil companies; (2) reconstruction of customs and excise duty; and (3) pricing of kerosene and LPG. The committee also recommended that oil companies shift from the present import parity measures to a trade parity pricing model. To liberalize the Indian petroleum market further, the Parliament of India passed the Deregulatory (Petroleum) Bill in April 2006.19 Energy security got a further boost when the Planning Commission gave form to the Integrated Energy Policy in 2006. The policy defined energy security in the Indian context as cited earlier in this chapter. It acknowledges that the “…traditional approach to the energy policy—of determining optimal supply strategy with quantitative targets—is no longer appropriate. We must provide policies that create an enabling environment and provide incentives to decision-makers,

16

Energy Security and Economic Development in India

consumers, private firms, autonomous public corporations, and government departments to behave in ways that result in socially and economically desirable outcomes”. The policy also set the following broad guidelines20 to achieve energy security in India. • Provide lifeline energy to all citizens irrespective of their paying capacity. • Cater to effective demand, that is, the demand backed by the ability to pay at market determined prices. If effective demand is not met, energy supply will be enjoyed only by the rich, while the poorer sectors will be deprived of it. • Ensure safe and convenient energy to avoid adverse impact on health particularly that of women and children. • Extend energy supplies at all times, as any interruptions can impose high costs on economy as well as on human well-being. • Take steps so that the disruptions and shocks in energy supply chain could be absorbed. The Integrated Energy Policy laid down a broad vision for the country’s energy security. However, the energy landscape is fast changing and new dynamics in geopolitics are rapidly evolving. These transformations have thrown open new challenges. The everexpanding energy mix, the enhanced linkages between them, and the growing energy deficiency compel India to have greater studies of these linkages and evolve comprehensive sectoral strategies with a holistic approach. This book aims to address these issues in subsequent chapters to contribute to India’s endeavour to ensure its energy security.

NOTES 1. Yergin, D. 2006. Ensuring energy security. Foreign Affairs 85(2): 69–89 2. Former President of India, Dr A P J Abdul Kalam’s address to the nation on the eve of its 59th Independence Day. 3. Planning Commission. 2006. Energy security. In Integrated energy policy: report of the Expert Committee. New Delhi: Planning Commission 4. Hamilton, J. D. 2011. Historical oil shocks. Cambridge: National Bureau of Economic Research. [NBER Working Paper No. 16790] Details available at

5. IEA (International Energy Agency). 2005. World Energy Outlook 2005: Middle East and North Africa insights. Paris: IEA

Introduction

17

6. Planning Commission. 2011. Faster, Sustainable, and More Inclusive Growth: an approach to the Twelfth Five-year Plan (2012-17). New Delhi: Planning Commission. Details available at 7. IEA (International Energy Agency). 2007. Focus on energy poverty. In World Energy Outlook 2007: China and India insights. Paris: IEA 8. NIC (National Intelligence Council). 2009. India: impact of climate change to 2030, a commissioned research report. Washington, DC: NIC. Details available at 9. Planning Commission. 2006. The challenges. In Integrated energy policy: report of the Expert Committee. New Delhi: Planning Commission 10. Mukhopadhyay, K., and D., Chakraborty. 2005. Energy intensity in India during pre-reform and reform period: an input-output analysis. Paper presented at the 15th International Input-Output Conference, Beijing, India, 27 June–1 July 2005, organized by Renmin University 11. CEA (Central Electricity Authority). 2012. Operation Performance of Generating Stations in the Country during the Year 2010-11: an overview. New Delhi: CEA 12. Press release on “Achievements of power sector for the last five years” issued by the Ministry of Power (September 2011) during the visit of Hon’ble Union Minister of Power, Shri Sushil Kumar Shinde, to Chicago. 13. Speech of Hon’ble Union Minister of Power, Shri Sushil Kumar Shinde, at the India–US Energy Summit in Chicago, held during September 2011. 14. MoC (Ministry of Coal). 2011. Report of the Working Group on Coal and Lignite for Formulation of the Twelfth Five-year Plan (2012-2017). New Delhi: MoC, Government of India 15. INCCA (Indian Network for Climate Change Assessment). 2010. India: greenhouse gas emissions 2007. New Delhi: INCCA, Ministry of Environment and Forests, Government of India 16. IEA (International Energy Agency). 2007. Overview of the energy sector. In World Energy Outlook 2007: China and India insights. Paris: IEA 17. IEA (International Energy Agency). 2007. Overview of the energy sector. In World Energy Outlook 2007: China and India insights. Paris: IEA 18. India Hydrocarbon Vision 2025. Details available at 19. Report of the Rangarajan Committee on Pricing and Taxation of Petroleum Products. February 2006. 20. Planning Commission. 2006. Energy security. In Integrated energy policy: report of the Expert Committee. New Delhi: Planning Commission

2 India’s Energy Resources Energy security broadly implies a strategy that ensures uninterrupted supply of energy at affordable prices. A proper assessment of the domestic energy resources is a crucial element in achieving energy security. In fact, such an assessment is the basis for developing the entire strategy of energy security. Moreover, although there are many resources available, particularly in India, energy resources are broadly identified with crude oil and its products like petroleum and diesel. Biomass, coal, wind energy, and hydropower play an important though silent role, sans popular perception, in the energy mix. In view of this, an effort has been made in this chapter to comprehensively enumerate the entire galaxy of energy resources in India.

CLASSIFICATION OF ENERGY RESOURCES Energy can be classified broadly into several types based on the following criteria. • Primary and secondary energy • Commercial and non-commercial energy • Renewable and non-renewable energy

Primary and Secondary Energy Primary energy sources are either found or stored in nature. Common primary sources are coal, oil, natural gas, and biomass (such as wood). Other primary energy sources include nuclear energy from radioactive substances, thermal energy stored in the earth’s interior,

20

Energy Security and Economic Development in India

and potential energy developed from the earth’s gravity. Primary energy sources are mostly converted into secondary energy sources for industrial use. For example, coal, oil or gas is converted into steam and electricity. Primary energy can also be used directly. Some energy sources have also got non-energy uses. For example, coal or natural gas can be used as a feedstock in fertilizer plants.

Commercial Energy and Non-Commercial Energy The energy sources that are available in the market and are traded as commodities for a definite price are known as commercial energy. The most important forms of commercial energy are electricity, coal, and refined petroleum products. Commercial energy forms the basis of industrial, agricultural, transport, and other commercial activities in the modern world. These commercial fuels are predominant sources of energy not only for economic production, but also for many household requirements of the general population. For example, electricity, lignite, coal, oil, and natural gas, play a crucial role in catering to individual needs. The foremost sources of commercial energy in India are both natural and derived. The natural sources include coking coal, non-coking coal, lignite, crude oil, natural gas, hydropower, nuclear power, wind, biomass, coal bed methane (CBM), coal mine methane (CMM), and solar energy, and the derived sources comprise petroleum products and thermal power. Coal, lignite, petroleum products, and natural gas are the most important sources of commercial energy. Coal and lignite dominate the energy supply chain in India, contributing to 55% of the total primary energy consumption. Over the years, there has been a significant increase in the share of natural gas in primary energy production (from 7% in 2007 to 10% in 2009/10).1 Major natural gas discoveries in the Krishna–Godavari Basin, and the development of CBM blocks under the New Exploration Licensing Policy (NELP) may provide a major fillip to the share of natural gas in the country. The capacity addition to natural gas production may lead to power, fertilizer and other core sectors shifting their fuel from liquid hydro carbons to natural gas. However, from 1994 till date, the share of petroleum products in primary energy production continues to remain around 32%.2 The energy sources that are not available in the commercial market for a price are classified as non-commercial energy. Non-commercial

India’s Energy Resources

21

energy sources include fuels such as firewood, cattle dung, and agricultural wastes, which are traditionally not bought at a price but gathered and used especially in rural households. Non-commercial energy is often ignored in energy accounting. But in a developing country like India, non-commercial energy plays a critical role in satisfying the basic energy requirement of the people.

Renewable and Non-renewable Energy Renewable energy is obtained from sources that are essentially inexhaustible. Renewable resources include wind, sun, geothermal energy, tide, water, biomass, waves, oceans, and thermal, nuclear, and hydroelectric power. The most important feature of renewable energy is that it can be harnessed without the release of major harmful pollutants. Non-renewable energy includes conventional fossil fuels such as coal, oil, and gas, which are likely to exhaust with time. While a large share of energy requirements in India is met from indigenous sources, almost all sources of energy like coal, crude oil, petroleum products, and natural gas need to be imported to meet the growing demand. At present, the import dependency is for coal 14%, for crude oil and petroleum products is 77%, and for natural gas is 26%.3 Such dependency is expected to rise steeply for oil, considerably for coal and marginally for natural gas. To address these shortages, several forms of new and renewable resources are being developed in India. A comprehensive list of energy resources are presented below. This will show the entire range of India’s resources as well as the role that can be played by them in our strategy to achieve energy security.

Coal India has huge coal reserves with at least 101.90 billion tonnes (BT)4 of proven recoverable reserves and 130 BT of probable reserves. This is about 13% of the world proven reserves and it may last for about 100 years at the current reserve-to-production (R/P) ratio. In contrast, the world’s proven coal reserves are expected to last for 140 years at the current R/P ratio. Till the beginning of the century, coal had a dominant position as a source of energy. Despite the increase in the share of hydrocarbons, coal remains to be the largest source of energy with 55% share in

22

Energy Security and Economic Development in India

the total energy mix. Being the most dependable long-term source of energy, the exploitation and burning of coal resources is continuously increasing, particularly in developing countries like India. India happens to be the third largest producer of coal and lignite in the world. Coal can be codified into two categories, namely, coking coal and non-coking coal. Coking coal has high calorific value and is mostly consumed by the steel industry. Non-coking coal is of inferior quality compared to coking coal. In 2008/09, India consumed 37 million tonnes (MT) of coking coal, 456 MT of non-coking coal, and 34 MT of lignite.5 This implies an 8% increase over the previous year; more than a two-fold increase since 1990/91; and more than a four-fold increase since 1980/81. Nearly three-fourths of the coal consumed in India is used by the power sector. Cement and steel industries are the other significant users. Indian coal deposits (Figure 1) are primarily concentrated in the Gondwana sediments, occurring mainly in the eastern and central parts of Peninsular India. Tertiary coal-bearing sediments are found in Assam, Arunachal Pradesh, Nagaland and Meghalaya. As a result of the exploration carried out by the Geological Survey of India Production (million tonnes) 500 400 300 200 100

08 07 /

/0 7

20

6

06

/0 05

20

05 20

04 20

04 /

3

03 /

20

/0

2 02

20

01 /0

/0 1

20

00

00 20

20 9/

19 9

19 9

8/

99

0

Year

Figure 1 Production of coal Source Garud, S., and I., Purohit. 2009. Making solar thermal power generation in India a reality: overview of technologies, opportunities, and challenges.

India’s Energy Resources

23

(GSI), Central Mine Planning and Design Institute (CMPDI), and other agencies, 267.21 BT of coal resources up to a depth of 1200 m have been established in the country as on 1 April 2009. Out of these resources, 105.72 BT are proven reserves. Total prime coking coal resources are 5.31 BT.6 Chhattisgarh is the largest coal producing state with a share of about 20.7%, followed closely by Odisha and Jharkhand having a contribution of 20.0% and 19.5%, respectively, in the national output. The other important contributors are Madhya Pradesh (14.5%), Andhra Pradesh (9.0%), Maharashtra (7.90%), West Bengal (4.60%), and Uttar Pradesh (2.40%). The remaining 1.40% of coal production accrues from Meghalaya, Assam, and Jammu and Kashmir. As of 31 March 2008, there are 559 coal mines in India that are under production. Out of these, 174 mines are located in Jharkhand followed by West Bengal (102), Madhya Pradesh (74), Andhra Pradesh (52), Chhattisgarh (57), Maharashtra (53), and Odisha (27). The remaining 20 mines are located in the states of Assam, Jammu and Kashmir, Uttar Pradesh, and Meghalaya. There are 76 large mines, each producing more than 1 MT of coal in a year. As of 1 April 2008, these mines account for about 74% of the total production. Reserves of coal by state/coalfield are given in Annexure III. Indian coal is classified into two main classes; namely, coking and non-coking. Coking coal is a type of coal from which coke is produced on carbonization. As it has a higher calorific value, it will mostly be used in metallurgical industries, particularly in iron and steel industries. Non-coking coal is coal of inferior quality compared to coking coal. It is classified based on useful heat value (UHV) which is determined through empirical formulae.7 The classification of coal as per the Ministry of Coal is given in Table 1. Coal mines were nationalized between 1971 and 1973. A total of 213 coal blocks with geological resources of 48 BT have been allotted to various private and public sector companies for captive mining over the years. The process of allocation needs approval from the Inter-ministerial Screening Committee on a first come, first served basis. The union government has announced its decision to allocate coal blocks based on competitive bidding to bring transparency into the process and as an incentive for allottees to develop the blocks at a more fleet footed pace. The Ministry of Coal is finalizing the Coal Governance and Regulation Authority Bill to appoint a regulator for the coal sector, which will bring considerable reform in the sector.

24

Energy Security and Economic Development in India

Table 1

Classification of coal

Class

Grade

Grade/specification

Non-coking coal produced A in all states other than B Assam, Arunachal Pradesh, Meghalaya, and Nagaland C

UHV exceeding 6200 kcal/kg UHV exceeding 5600 kcal/kg but not exceeding 6200 kcal/kg UHV exceeding 4940 kcal/kg but not exceeding 5600 kcal/kg

D

UHV exceeding 4200 kcal/kg but not exceeding 4940 kcal/kg

E

UHV exceeding 3360 kcal/kg but not exceeding 4200 kcal/kg

F

UHV exceeding 2400 kcal/kg but not exceeding 3360 kcal/kg

G

UHV exceeding 1300 kcal/kg but not exceeding 3360 kcal/kg

Non-coking coal produced A in Arunachal Pradesh, Assam, Meghalaya, and Nagaland

UHV between 6200 kcal/kg and 6299 kcal/kg and corresponding ash plus moisture content between 18.85% and 19.57%

B

UHV between 5600 kcal/kg and 6199 kcal/kg and corresponding ash plus moisture content between 19.58% and 23.91%; ash content not exceeding 15%

Steel grade I

Ash content exceeding 15% but not exceeding 18%

Steel grade II

Ash content exceeding 18% but not exceeding 21%

Washery grade I

Ash content exceeding 21% but not exceeding 24%

Coking coal

Washery grade II Ash content exceeding 24% but not exceeding 28% Washery grade III Ash content exceeding 28% but not exceeding 35% Washery grade IV Semi-coking and weakly coking coal

Semi-coking grade I Semi-coking grade II

Ash plus moisture content not exceeding 19% Ash plus moisture content exceeding 19% but not exceeding 24% Contd...

India’s Energy Resources

25

Table 1 Contd... Class

Grade

Grade/specification

Hard coke

By-product premium By-product ordinary By-product premium By-product superior By-product ordinary

Ash content not exceeding 25% Ash content exceeding 25% but not exceeding 30% Ash content not exceeding 27% Ash content exceeding 27% but not exceeding 31% Ash content exceeding 31% but not exceeding 36%

UHV – useful heat value

There are eight coal-producing companies in the public sector. Out of these, Eastern Coalfields Ltd (ECL), Bharat Coking Coal Ltd (BCCL), Central Coalfields Ltd (CCL), Western Coalfields Ltd (WCL), South-Eastern Coalfields Ltd (SECL), Mahanadi Coalfields Ltd (MCL), Northern Coalfields Ltd (NCL), and North-Eastern Coalfields Ltd (NEC) are subsidiary companies of Coal India Ltd (CIL), a Government of India undertaking. The Singareni Collieries Company Ltd (SCCL) is a joint venture of the Government of India and the Government of Andhra Pradesh. The CMPDI is a subsidiary of CIL, which is engaged in surveying, planning, and designing work with a view of optimizing coal production. The BCCL is the major producer of prime coking coal (raw and washed). Medium coking coal is also produced in Mohuda and Barakar areas. The CCL operates mines in Bokaro, Ramgarh, Giridih, and North and South Karanpura Coalfields in Jharkhand. Its products include medium coking coal (raw and washed), non-coking coal, soft coke, and hard coke. The WCL operates coal mines located in Pench and Kanhan in Maharashtra and Patharkheda in Madhya Pradesh. This company largely meets the requirements of industries and power stations in the western region of the country. The ECL covers Raniganj Coalfields in West Bengal and Mugma and Rajmahal Coalfields in Bihar. The coalfields of Chhattisgarh—Korba (East and West), Baikunthpur, Chirimiri, Hasdeo, Sohagpur, Jamuna-Kotma, and Johilia—are under the SECL. The NEC is responsible for the development and production of coal in the North-Eastern States. This area has large proven reserves of low ash, high calorific value coal but because of its high sulphur content, it cannot be used directly as metallurgical coal. The SCCL operates coal mines in Andhra Pradesh

26

Energy Security and Economic Development in India

producing non-coking coal. The coal requirements of consumers in the south are mostly met by this company. The MCL, which is another subsidiary of CIL, operates the Talcher and Ib Valley Coalfields in Odisha. The NCL covers the entire Singrauli Coalfields situated in Madhya Pradesh and Uttar Pradesh. The Bihar State Mineral Development Corporation Ltd (BSMDC), Damodar Valley Corporation (DVC), and Jammu and Kashmir Minerals Ltd (JKML) are state government undertakings engaged in coal mining. The IISCO steel plant of Steel Authority of India Ltd (SAIL) is the only public sector steel unit operating captive mines for coal. The Bengal Emta Coal Mines Ltd (BECL), Jindal Steel and Power Ltd (JSPL), Hindalco, and Tata Steel are the companies operating captive mines in the private sector. More than 92% of the coal production in India is of non-coking coal. Coal mining in the country is carried out by both opencast and underground methods. Opencast mining contributes over 86% of the total production and the rest of the production (about 14%) comes from underground mining. These mines are mostly semi-mechanized or mechanized. As can be seen from Table 2, coal production has been registering consistent increase all through the plan periods. Coal shortages in recent times have compelled both public and private sector coal consumers to import (Table 3) to fulfill their demands and meet their production targets. During 2008/09, the import and export of coal was about 56 MT and 1.66 MT, respectively. It is estimated that in the terminal year of the Twelfth Five-year Plan, the total demand will be 980 MT, whereas the production would be 715 MT creating a gap of 265 MT, as shown in Table 4.

Clean Coal Technologies • Integrated gasification combined cycle The Government of India is also promoting clean coal technologies such as integrated gasification combined cycle (IGCC). India’s first IGCC plant with a 125 MW capacity will be set up in Vijayawada by the Bharat Heavy Electricals Ltd (BHEL) as per a memorandum of understanding (MoU) signed with the Andhra Power Generation Corporation (APGenco). • Coal washeries Coal washeries are meant to increase the output of washed coking and non-coking coal. Presently, there are 19 coal washeries (15 in the public sector and four in the private

India’s Energy Resources

27

Table 2 All India coal production in the terminal years of five-year plans Plan

Period

Coal production (in million tonnes)

Compound annual growth rate (%)

First Plan

1951/52–1955/56

39

—

Second Plan

1956/57–1960/61

56

7.5

Third Plan

1961/62–1965/66

68

4.0

Fourth Plan

1969/70–1973/74

78

1.8

Fifth Plan

1974/75–1978/79

102

5.5

Sixth Plan

1979/80–1983/84

138

6.3

Seventh Plan

1984/85–1989/90

201

6.4

Eighth Plan

1992/93–1996/97

289

5.3

Ninth Plan

1997/98–2001/02

328

2.5

Tenth Plan

2002/03–2006/07

431

5.6

Eleventh Plan

2007/08–2011/12

680

9.6

Sources 1. Ghosh, A. B. 1977. Coal Industry in India. New Delhi: Sultan Chand and Sons 2. MoC (Ministry of Coal). 1993. Coal Directory of India 1992/93. New Delhi: MoC 3. MoC (Ministry of Coal). 2000. Annual Report 1999/2000. New Delhi: MoC. Details available at 4. MoC (Ministry of Coal). 2001. Coal Directory of India 2000/01. New Delhi: MoC

Table 3 Trends in the import of coal (MT) Energy source 1990/91 1995/96 2000/01 2005/06 2006/07 2007/08 2008/09 Coking coal

5.9

9.4

11.1

16.9

17.9

22.30

21.08

Non-coking coal

0.2

3.1

09.9

21.7

25.2

27.77

35.0

Total

6.1

3.5

21.0

38.6

43.1

50.07

56.08

Source IBM (Indian Bureau of Mines). 2009. Coal and lignite. In Indian Minerals Year Book 2008. Nagpur: IBM

Table 4

Estimated demand and production of coal in the terminal year of Twelfth Five-year Plan

Type of coal

Demand (MT)

Production (MT)

67.20

31.70

−35.50

Non-coking

913.30

683.30

−230.00

Total

980.50

715.00

−265.50

Coking

MT – million tonnes

Gap(–)/Surplus (+) (MT)

28

Energy Security and Economic Development in India

sector) with a 32.80 MT capacity. They produced 7.17 MT of coking coal in 2007/08. Similarly, there are nine coal washeries with a capacity of 26.53 MT that produced 12.69 MT of non-coking coal during the same year. In the public sector, the BCCL operates nine coal washeries (Dugda II, Bhojudih, Patherdih, Sudamdih, Barora, Moonidih, Mahuda, Madhuband and Dugda-I), CCL four washeries (Kathara, Swang, Rajrappa, and Kalla), WCL operates one (Nandan), and SAIL operates one (Chasnala), whereas four washeries (W. Bokaro-II, W. Bokaro-III, Jamadoba, and Bhelatand) are operated by Tata Steel Ltd, in the private sector. The CIL has envisaged setting up 20 new coal washeries for an ultimate raw coal output capacity of 111.10 million tonnes per annum (MTPA) with an estimated capital investment of about `25 000 million. These include seven coking coal washeries. • Coal bed methane As part of the CBM policy approved in July 1997, 26 CBM blocks have been awarded in the first three rounds. During the fourth phase of CBM, the government offered 10 blocks covering an area of about 5000 km 2 spread over seven states, namely, Assam, Jharkhand, Odisha, Madhya Pradesh, Chhattisgarh, Maharashtra, and Tamil Nadu. It has received in its ambit 26 bids for eight blocks out of 10 blocks offered by the bid-closing date (12 October 2009) and 76 bids for 36 blocks out of 70 blocks offered under NELP VIII. • Underground coal gasification The Oil and Natural Gas Corporation (ONGC) entered into an Agreement of Collaboration with the National Mining Research Centre-Skochinsky Institute of Mining in Russia. In the selected Vastan mine block, a seismic survey was carried out and 18 boreholes were drilled for detailed underground coal gasification (UCG) site characterization. Vastan in Gujarat and Hodu Sindri in Rajasthan have been found suitable for UCG stations. A pilot production of UCG was started in 2010 in Vastan by the ONGC.

LIGNITE Indian lignite deposits occur in the tertiary sediments in the southern and western parts of the peninsular shield particularly in Tamil Nadu, Puducherry, Gujarat, Rajasthan, and Jammu and Kashmir. The total known geological reserves of lignite as on 1 April 2008 were

India’s Energy Resources

29

38.93 BT.8 Most of the reserves are in Tamil Nadu. Other states where lignite deposits have been located are Rajasthan, Gujarat, Jammu and Kashmir, Kerala, West Bengal, and the union territory of Puducherry. Non-availability of coal deposits in these states makes lignite an important source of energy. Of the 11 working mines, all of them are opencast; three of these mines are owned by the Neyveli Lignite Corporation (NLC), four by the Gujarat Mineral Development Corporation (GMDC), and two by the Rajasthan State Mines and Minerals Ltd (RSMML). One mine each is with the Gujarat Industries Power Company Ltd (GIPCL) and Gujarat Heavy Chemicals Ltd (GHCL). The NLC mines are highly mechanized. Electric-powered equipment like bucket-wheel excavators, fabric and steel cord belt conveyors, trippers and spreaders are used in their opencast mines for excavation, transportation, and refilling of the overburden. The NLC mines are the largest opencast mine in the whole country with eco-friendly technology. Hydraulic shovels and dumpers are used only for auxiliary works. As on 1 April 2011, the total lignite reserves are estimated to be 40 905.86 MT, as shown in Table 5. There will be shortfall in lignite production in the Twelfth Fiveyear Plan, but this gap will be reduced substantially in the Thirteenth Five-year Plan, as shown in Table 6.

HYDROCARBONS Hydrocarbons have eminently dominated the energy scenario for several decades. Although it started with liquid hydrocarbons for the Table 5 Total lignite reserves as on 1 April 2011 State

Proved (MT)

Indicated (MT)

Inferred (MT)

Total (MT)

Tamil Nadu

3 735.23

22 900.05

6 257.64

32 892.92

Rajasthan

1 166.96

2 148.72

1 519.61

4 835.29

Gujarat

1 243.65

318.70

1 159.70

2 722.05

Puducherry

0.00

405.61

11.00

416.61

Kerala

0.00

0.00

9.65

9.65

Jammu and Kashmir

0.00

20.25

7.30

27.55

West Bengal

0.00

0.93

0.86

1.79

6 145.84

25 794.26

8 965.76

40 905.86

Total

30

Energy Security and Economic Development in India

Table 6 Demand, production, and excess/shortfall in lignite production during Twelfth and Thirteenth plans in a few cities State

Twelfth Plan (total plan period) (MT) Demand Production Excess /shortfall

Tamil Nadu

126.61

124.97

−1.64

45.48

45.75

+0.76

Gujarat

102.85

93.85

−9.00

43.60

39.00

−4.60

70.84

71.34

+0.50

19.54

19.80

+0.26

300.30

290.16

−10.14

108.62

104.55

−3.58

Rajasthan Total

Thirteenth Plan (terminal year) (MT) Demand Production Excess /shortfall

transport sector, in recent years, it has expanded to natural gas, CBM, and CMM, which have contributed significantly to power generation and allied activities such as hydrogen gas production, and extraction of tar from sands. Natural gas has commendably augmented the availability of energy in the Krishna–Godavari Basin in Andhra Pradesh.

Oil Supply Oil accounted for about 33% of India’s total energy consumption in 2009.9 Presently, India is one of the top 10 oil-guzzling countries in the world, and perhaps in the not so distant future, the country will overtake Korea as the third largest consumer of oil in Asia, after China and Japan. In 2008/09, India’s oil consumption was 143 MT, of which domestic production was only 34 MT. India may have to bear the burden of an oil bill of roughly $100 billion, assuming a weighted average price of $100 per barrel of crude. From current market trends, crude oil prices will be much higher than this level in the future. In 2008/09, against a total import of $64 billion, oil imports accounted for $21 billion. India imports 70% of its crude requirement mainly from Gulf countries. The majority of India’s roughly 5.4 billion barrels of oil reserves, which is 4.5% of the world’s total, are located in Bombay High, Upper Assam, Cambay, Krishna–Godavari, and Barmer of Rajasthan. In terms of petroleum product consumption by sector, transport accounts for 42% followed by the domestic industry with 24%.

Exploration of Domestic Oil and Gas India’s offshore and onshore basins may contain as much as 11 billion barrels. India ranks 25th in the world as the producer of

India’s Energy Resources

31

crude oil, accounting for about 1% of the world’s annual crude oil production and origination. India has an estimated sedimentary area of 3.14 million km2, comprising 26 sedimentary basins.10 Prior to the adoption of the NELP, only 11% of India’s sedimentary basin was under exploration. Since the operationalization of the NELP in 1999, the Government of India has awarded 47.3% of it for exploration. So far, 216 hydrocarbon discoveries comprising 123 oil discoveries and 93 natural gas discoveries have been made by private/joint venture companies. So far, 47% of the estimated sedimentary area of 0.314 million km2 has been awarded under the NELP. The break-up of hydrocarbon discoveries are given in Table 7. As on 1 October 2010, investment made by Indian and foreign companies was of the order of $14.8 billion, of which, $7.5 billion was in hydrocarbon exploration and $7.3 billion in development of discoveries. During the Eleventh Five-year Plan, a target of 206.763 MT was fixed for production of crude oil. However, the actual production is estimated to be 177.05 MT but is 6.3% higher than that in the Tenth Five-year Plan (Table 8). Table 7

Hydrocarbon discoveries in 2007–11

Company

Oil

Gas

Total

ONGC

60

50

110

OIL

22

5

27

Private/JV

41

38

79

123

93

216

Total

JV – joint venture; OIL – Oil India Ltd; ONGC – Oil and Natural Gas Corporation

Table 8 Crude oil production in the Eleventh Five-year Plan (MT) Company Tenth Plan Actual ONGC

Eleventh 2007 Plan /08 Projected Actual

2008 /09 Actual

2009 /10 Actual

2010 /11 Actual

2011 Eleventh /12 Plan Projected Likely 23.735 124.135

129.001

140.06

25.944

25.367

24.671

24.418

OIL

15.493

18.99

3.100

3.468

3.572

3.585

3.760

17.485

Private /JV

22.081

47.71

5.087

4.674

5.262

9.682

10.690

35.395

166.575

206.76

34.131

33.509

33.505

37.685

Total

38.185 177.015

JV – joint venture; OIL – Oil India Ltd; ONGC – Oil and Natural Gas Corporation

32

Energy Security and Economic Development in India

The crude oil production profiles for Twelfth Five-year Plan are given in Table 9. Crude oil production by the Rajasthan Cairn Energy India Pvt. Ltd has started in block RJ-ON-90/1 with effect from 29 August 2009 at an initial production rate of 3500 barrels per day. Current crude oil production from this block is about 125 000 billion barrels per day. The government has designated the Indian Oil Corporation Ltd (IOC), Mangalore Refinery and Petrochemicals Ltd (MRPL), and Hindustan Petroleum Corporation Ltd (HPCL) for lifting part of the crude oil production from this block after ascertaining the capacity of receiving refineries of the nominees. The oil production from this block during 2009/10 was about 0.447 MT and during 2010/11, the production went up to 3.12 MT. The ninth round of NELP (NELP IX) was launched on 15 October 2010 and 34 exploration blocks, including eight deep water, seven shallow water, 11 on land, and eight type-S, on land were offered. On-land blocks are spread over six states, namely, Assam (2), Gujarat (11), Madhya Pradesh (2), Rajasthan (2), Tripura (1), and Uttar Pradesh (1).11 As on 1 April 2011, the refining capacity of India was 193.40 MT (Table 10). Due to well-established refining facilities, India has become the single largest exporter of finished petroleum products in Asia.12 The new refineries in Bhatinda, Paradip, and Bina will further augment the domestic refining capacity. By the end of the Eleventh Five-year Plan, refining capacity is expected to reach 232.3 MT. The country has a network of 24 product pipelines with a length of 11 037 km and a capacity of 67.2 MT; three liquefied petroleum gas (LPG) pipelines of length 2197 km and capacity 4.50 MT; six crude oil pipelines of length 5795 km and capacity 52.75 MT. The refining capacity is remediating the petroleum import dependency to a certain extent through their export earnings. Table 9

Projection of crude oil production in the Twelfth Five-year Plan (MT)

Company

2012/13

2013/14

2014/15

2015/16

2016/17

Total

ONGC

25.045

28.27

28.002

26.286

25.456

133.059

3.92

4.00

4.06

4.16

4.20

20.34

Private/JV

13.34

13.30

12.70

12.10

11.50

62.94

Total

42.305

45.57

44.762

42.546

41.156

216.339

OIL

JV – joint venture; OIL – Oil India Ltd; ONGC – Oil and Natural Gas Corporation

India’s Energy Resources

Table 10 Refining capacities of various refineries in India Refinery

Beginning of Eleventh Plan

Additions during Eleventh Plan

Capacity as on 1 April 2011

PSU IOC Digboi

0.65

—

0.65

IOC Guwahati

1.00

—

1.00

IOC Koyali

13.70

—

13.70

IOC Baruni

6.00

—

6.00

IOC Haldia

8.00

1.50

7.50

IOC Mathura

12.00

—

8.00

IOC Panipat

—

3.00

15.00

IOC Bongaigaon

5.50

2.35

2.35

HPC Mumbai

7.50

1.00

6.50

12.00

0.80

8.30

BPC Mumbai

—

—

12.00

BPC Kochi

7.50

2.00

9.50

BPC-BORL Bina

—

6.00

6.00

KRL Kochi

—

—

0.00

CPCL Chennai

9.50

1.00

10.50

CPCL Narimanam

1.00

—

1.00

BRPL Bongaigaon

2.35

2.35

0.00

NRL Numaligarh

3.00

—

3.00

ONGC Tatipaka

0.08

—

0.08

MRPL Mangalore

9.69

2.13

11.82

105.47

17.43

122.90

33.00

—

33.00

—

27.00

27.00

10.50

—

10.50

HPC Visakh

Total PSU RIL Jamnagar RPL (SEZ) Jamnagar EOL Jamnagar JVC/Private total All-India total

43.50

27.00

70.50

148.97

44.43

193.40

Source 

33

34

Energy Security and Economic Development in India

Equity in Oil and Gas from Abroad The Government of India is encouraging national oil companies to aggressively pursue acquisition of equity in oil and gas opportunities overseas. At present, Indian oil companies run their operations in 20 counties—Vietnam, Russia, Sudan, Myanmar, Iraq, Iran, Egypt, Syria, Cuba, Brazil, Kazakhstan, Gabon, Colombia, Nigeria Sao Tome Principe, Trinidad and Tobago, Nigeria, Venezuela, Oman, Yemen, Australia and Timor Leste. The ONGC Videsh Ltd (OVL) produced about 8.75 MT of oil and equivalent gas in 2008/09 from its assets abroad in Sudan, Vietnam, Venezuela, Russia, Syria, and Colombia.13 In 2008/09, the OVL acquired seven blocks in five countries comprising two blocks each in Brazil and Columbia and one each in Myanmar and Venezuela. The largest ever acquisition of a foreign company, Imperial Energy Plc., UK (IEC), was undertaken by the OIL. The OIL–IOCL alliance has also acquired one block in Timor Leste and two blocks in Egypt. The BPCL, along with Videocon, has acquired participating interest in 10 blocks in Brazil.

Natural Gas Supply Natural gas accounted for about 8.7% of the energy consumption in the country in 2008/09. The natural gas production in 2010/11 was about 135 million standard cubic metre per day (MSCMD), which includes about 44 MSCMD from Krishna–Godavari deepwater. The production of natural gas in the Eleventh Five-year Plan period has increased significantly by about 51.6% from 89 MSCMD at the beginning of the Eleventh Plan period.14 Natural gas reserves are estimated at 660 billion cubic metres. Of the total natural gas available in the country, about 65% is used for energy purposes. The penetration of the use of natural gas is rightly expected to increase in the transport and household sectors. This is primarily due to the focus on the usage of cleaner fuels and efforts made to decrease dependence on petroleum products. The power sector absorbs the major share of natural gas for energy purposes. In the non-energy sector, natural gas is used in the fertilizer (82.6%) and petrochemical industries (12%) as feedstock. The Gas Authority of India Ltd (GAIL), the largest player in the gas transportation business, commissioned two gas transportation pipelines in 2007/08, namely, the Dahej–Panvel–Dabhol pipeline and the Dahej–Uran pipeline. The government came up with the NELP to provide an international class fiscal and contract framework for

India’s Energy Resources

35

exploration and production of hydrocarbons. The NELP-IX is the last round of NELP before the introduction of the Open Acreage Licensing (OAL) Policy.15 The Petroleum and Natural Gas Regulatory Board (PNGRB) issued regulations for the creation and operation of the city gas distribution (CGD) network and natural gas transportation during 2007/08 and first half of 2008/09. The details of natural gas production targets vis-à-vis achievements during the Eleventh Five-year Plan are given in Table 11. The gas production profiles for the Twelfth Five-year Plan are as given in Table 12. In recent years, there have been a number of gas discoveries in India, which are listed in Table 13. With the Krishna–Godavari Basin discovery by the Reliance Industries Ltd (RIL), there has been a change in perception in terms of the possible gas reserves in various sedimentary basins in India. During 2007/08, national oil companies only had three natural gas Table 11 Natural gas production in the Eleventh Five-year Plan (BCM) Company

Tenth Eleventh 2007 2008 2009 2010 2011 Eleventh Plan Plan /08 /09 /10 /11 /12 Plan (actual) (projected) (actual) (actual) (actual) (actual) (projected) (likely)

ONGC

115.814 112.39

22.334 22.486

OIL

10.167

16.43

2.343

2.269

Private/JV

33.065 126.45

7.727

Total Total MSCMD

159.046 255.27 87.1

139.9

23.109 23.095 2.352

2.633

12.012

8.090

21.985 26.774

25.580

90.156

32.404 32.845

47.509 52.221

51.671 216.650

88.8

90.0

2.415

23.458 114.482

130.2

143.1

141.6

118.7

JV – joint venture; MSCMD – million standard cubic metre per day; OIL – Oil India Ltd; ONGC – Oil and Natural Gas Corporation

Table 12 Projection of natural gas production in the Twelfth Five-year Plan (BCM) Company

2012/13

2013/14

2014/15

2015/16

2016/17

Total

ONGC

25.266

25.472

26.669

28.215

38.676

144.298

3.30

3.80

4.00

4.27

4.45

19.82

Private/JV

23.71

32.38

39.4

40.43

41.46

177.38

Total

52.276

61.652

70.069

72.915

84.586

341.498

OIL

Total MSCMD

143.22

168.91

191.97

199.77

231.74

187.12

JV – joint venture; MSCMD – million standard cubic metre per day; OIL – Oil India Ltd; ONGC – Oil and Natural Gas Corporation

36

Energy Security and Economic Development in India

Table 13

Gas discoveries in 2007/08

Allocation

Field

Company

Name of discovery

Month of discovery

Status

Pre-NELP

AAP-ON -94/1

HOEC

Diork-1

January 2008

Under evaluation by operator

Pre-NELP

RJ-ON/6

FOCUS

SSF-2

February 2008

Under evaluation by operation

NELP-I

MN-DWN -98/3

ONGC

MOW-4A

April 2007

Under evaluation by operator

NELP-I

KG-DWN /98/3

RIL

Dhirubhai -34

May 2007

Under evaluation by operator

NELP-I

KG-DWN -98/2

ONGC

KT-1

July 2007

Under evaluation by operator

NELP-I

MN-DWN -98/3

ONGC

MDW-5

December 2007

Under evaluation by operator

NELP-I

NEC-OSN -97/2

RIL

Dhirubhai -40

February 2008

Under evaluation by operator

NELP-II

GS-OSN -2000/1

RIL

Dhirubai -33

May 2007

Under evaluation by operator

NELP-III

KG-OSN -2001/3

GSPC

KG-15

August 2007

Under evaluation by operator

NELP-III

KG-OSN -2001/3

GSPC

KG-16

September Under evaluation 2007 by operator

NELP-III

KG-OSN -2001/1

RIL

Dhirubai -37

November 2007

Under evaluation by operator

NELP-III

KG-OSN/1

RIL

Dhirubai -38

January 2008

Under evaluation by operator

NELP-IV

CY-ONN -2002/1

Jubilant Enpro

Cy-1

January 2008

Under evaluation by operator

NELP-V

KG-DWN -2003/1

RIL

Dhirubhai -39

February 2008

Under evaluation by operator

NELP – New Exploration Licensing Policy; GSPC – Gujarat State Petroleum Corporation; RIL – Reliance Industries Ltd; ONGC – Oil and Natural Gas Corporation; HOEC – Hindustan Oil Exploration Company Ltd

discoveries. All these discoveries were made by the ONGC. The first was MDW-4A, which was allotted to the ONGC during NELP I. It lies in the MNDWN-98/3 field in the Mahanadi Basin. The second was in the KC-DWN-98/2 field, which was also allotted to the company during NELP-I. The last discovery was again in the Mahanadi Basin

India’s Energy Resources

37

in the MNDWN- 98/3 field, and the find was named MDW-5.16 In the Mahanadi Basin, the ONGC holds 100% interest in the block MN-DWN-98/3. The Indian E&P major is considering divesting a minority stake in the block in favour of Italy’s ENI. In February 2007, the ONGC and the ENI entered into a stake-swapping agreement, according to which the ENI acquired 34% stake in the MNDWN2002/1 block in Mahanadi for 20% PI, which was awarded to the ONGC in the MTPN (Mer Tres Profonde Nord) exploration block in Congo.

Liquefied Natural Gas Terminals To bridge the gap between demand and supply, one of the options considered has been to import natural gas in its liquefied form, commonly referred to as liquefied natural gas (LNG). Further, to encourage the import of LNG, it has been placed under the open general license (OGL) list, and 100% foreign direct investment (FDI) has been permitted for setting up LNG terminals. At present, there are two operational LNG terminals, namely, Dahej LNG terminal of capacity 6.5 MTPA and Hazira terminal of capacity 2.5 MTPA.

Import of Liquefied Natural Gas The Petronet LNG Ltd (PLL), promoted by the ONGC, GAIL, IOCL, and BPCL, was formed to import LNG and set up an LNG re-gasification plant at Dahej. The PLL signed a contract with RasGas, Qatar, in July 1999 for importing 7.5 MTPA LNG for a period of 25 years. As per this contract, supply of 5 MTPA commenced in 2004 and the balance 2.5 MTPA in January 2010. In addition to these term contracts, LNG is also being sourced from the spot market by PLL and Hazira LNG Private Ltd (HLPL). During 2009/10, about 8.91 MTPA LNG was imported. This is equivalent to about 31 MSCMD of re-gasified LNG (RLNG). During April–November 2010, 4.91 MTPA of LNG has been imported.17 As part of the concerted efforts to augment the country’s supply of LNG, the PLL has tied up 1.44 MTPA for its Kochi LNG terminal from Exxon Mobil’s share in the Gorgon project, Australia, for 20 years. The sale and purchase agreement (SPA) for it was executed in August 2009. In addition, GAIL and PLL are exploring the possibility of importing LNG from various potential suppliers.

38

Energy Security and Economic Development in India

To handle the increased LNG imports, additional infrastructure is being created in the country. The capacity at PLL’s Dahej LNG terminal has been expanded to 10 MTPA in July 2009. The Dabhol LNG terminal, although planned to be commissioned by 2010, got delayed owing to the discontinuation of construction activities, because of the collapse of Enron (the original promoter of Dabhol LNG terminal). Its commissioning is planned to be reviewed now. The PLL is setting up an LNG terminal in Kochi, which is planned to be commissioned in 2011/12.18 Details of the present and proposed LNG terminals are mentioned in Table 14.

Gas Hydrates Gas hydrate is a prodigious reserve of frozen methane, tucked in the seabed. India is bestowed with such resources near Andaman as well as in the Krishna–Godavari and Mahanadi Basin seabeds. It is generally deemed that exploration and exploitation of hydrates will be a long-term option. However, there are recent developments including the exploratory drilling started by South Korea which are advancing the time frame for its usage. India is a pioneer in the field of gas hydrate. In accordance with the roadmap for the National Gas Hydrate Programme (NGHP), India has already acquired core samples with the help of the US drilling ship JOIDES Resolution. In December 2008, an MOU was signed between the Directorate General of Hydrocarbons and the US Geological Survey for cooperation in the exchange of scientific knowledge and technical personnel in the field of gas hydrates and research. The second NGHP expedition was held in 2010 to map the prospects of gas hydrates in the Krishna–Godavari and Mahanadi deepwater areas.

Shale Gas Shale gas is an unconventional source of natural gas. Shale is a rock formation with low permeability that allows significant fluid flow to a well bore. Shale gas has been produced for years from shales with natural fractures. However, gas production in commercial quantities requires fractures to increase permeability. Application of fracturing techniques to stimulate oil and gas production began to grow rapidly in the 1950s, although experimentation dates back to the nineteenth

India’s Energy Resources

Table 14

39

Existing and proposed LNG terminals in India

Project and developer

Location (state)

Capacity (MTPA)

Supplier

Status

Dahej LNG terminal (Petronet)

Dahej (Gujarat) 6.5 (to be expanded up to 10)

RasGas (Qatar- Commissioned based LNG in February supply company) 2004, and and spot commercial cargoes sales began in April 2004

Hazira LNG (Shell)

Hazira (Gujarat) 2.5 (Phase I)

Spot cargoes

Commissioned in April 2005

Dabhol terminal (owned by Ratnagiri Gas and Power Company)

Dabhol (Maharashtra)

5.0

Still to be finalized

75% complete; commissioning delayed due to firm supply contracts

Kochi LNG Kochi (Kerala) (Petronet LNG)

2.5

Still to be finalized

Project expected to be completed by 2011/12

Ennore LNG (IOCL and CPCL)

Ennore (Tamil Nadu)

2.5

Still to be finalized

Planned

Mangalore ONGC and MRPL

Mangalore (Karnataka)

2.5

Still to be finalized

Planned

CPCL – Chennai Petroleum Corporation Ltd; IOCL – Indian Oil Corporation Ltd; LNG – liquefied natural gas; MRPL – Mangalore Refinery and Petrochemicals Ltd; MTPA – million tonnes per annum; ONGC – Oil and Natural Gas Corporation

century. The development of new horizontal drilling technology in conjunction with hydraulic fracturing has greatly increased the ability to produce natural gas from low permeable geographical formations, particularly shale formations. The development of shale gas seems to be a “game changer” in the energy market. As per “an initial assessment of world shale gas resources by the US Energy Information Administration”, the technically recoverable shale gas resources in India will be 63 trillion

40

Energy Security and Economic Development in India

cubic feet (tcf)19 out of the total estimated reserves of 290 tcf. India will occupy the 14th place in the world’s technically recoverable shale gas resources. China will lead the world in the resource with 1275 tcf. These gas reserves are available in Cambay, Krishna, Godavari, Cauvery and the Damodar Valley sub-basins such as Kariganz, Jharia, and Bokaro. Cambay Basin The depth of the Cambay “black shale” ranges from about 6000 ft in the north to more than 13 000 ft in the lows of the southern fault blocks. The black shale interval ranges from a thickness of 1500 ft to more than 5000 ft. The Cambay Basin contains five distinct fault blocks, from north to south: (1) Sanchor Patan, (2) Mehsana–Ahmedabad, (3) Tarapur, (4) Broach, and (5) Narmada. It is estimated that the Cambay Basin has a black shale reserve of 79 tcf out of which 20 tcf may be technically recoverable.20 Mehsana–Ahmedabad Block Three major deep gas areas (depressions) exist in the Mehsana–Ahmedabad Block: the Patan, Worosan, and Wamji. A deep well, Well-A, was drilled in the eastern flank of the Wamji Low to a depth of nearly 15 000 ft, terminating below the “black shale”. In addition, a few wells were recently drilled in the Cambay Shale in the axial part of the graben low. A high pressure gas zone was encountered in the Upper Olpad section next to the Cambay Shale, where methane increases with depth. Geochemical modelling indicates an oil window at 6600 ft, a wet gas window at 11 400 ft, and a dry gas window at 13 400 ft, respectively. Broach and Tarapur Blocks The deeper Tankari low in the Broach Block and the low in the Tarapur Block appear to have a similar thermal history as the Mehsana–Ahmedabad Block depression and thus may also have shale gas potential, particularly in the lower interval of the Cambay “black shale” in the Broach and Tarapur depocentres. Krishna–Godavari Basin The Krishna–Godavari Basin contains a series of organically rich shale, including the deeper Permian-age Kommugudem shale which is gas prone and appears to be in the gas window of the basin grabens. In this basin, out of the estimated reserves of 136 tcf, 27 tcf is estimated to be technically recoverable. Cauvery Basin The Cauvery Basin contains a series of depressions (sub-basins) that hold potential for shale gas; two of these,

India’s Energy Resources

41

Ariyalur—Puducherry and Thanjavur, contain thick, thermally mature shale. The Ariyalur–Puducherry depression (sub-basin) is in the northern portion of the Cauvery Basin. The Lower Cretaceous Andimadam/Sattapadi shale encompasses a 5000 ft thick interval at a depth of 6600 ft to 11 600 ft. The Thanjavur depression (sub-basin), in the centre of the Cauvery Basin, has a thick section of Andimadam and Sattapadi shale encompassing an over 8000 ft thick interval at a depth of 5000 ft (top of Sattapadi shale) to 13 000 ft (base of Andimadam Fm), averaging a depth of 9000 ft. It is estimated that 9 tcf of technically recoverable shale gas is available in this basin out of 43 tcf of reserves. Damodar Valley Basin The Damodar Valley Basin is part of the Gondwana region comprising the Satpura, Pranhita–Godavari, Son– Mahanadi, and Damodar basins. Tectonic activity formed the major structural boundaries of the Gondwana region. Sedimentation in the Early Permian Gondwana Basins was primarily glacial–fluvial and lacustrine, resulting in significant deposits of coal. As such, the majority of exploration activities are focused on the basins’ coal resource potential, which accounts for essentially all of India’s coal reserves (about half of which are in the Damodar Valley Basin). However, a marine incursion took place between periods of continental deposition, depositing a layer of early Permian shale, called the “Barren Measure” Shale Formation. This formation, called the Ironstone Shale in the Raniganj Sub-basin, is the target of India’s first shale gas exploration well in the eastern Damodar Valley. Although present in other Gondwana Basins, such as the Rewa Basin in Odisha, data suggest that the shale is only thermally mature in the east, probably only within the Damodar Valley Basin. The Damodar Valley Basin comprises a series of subbasins (from west to east, Hutar, Daltonganj, Auranga, Karanpura, Ramgarh, Bokaro, Jharia, and Raniganj). Although these sub-basins share a similar geologic history, tectonic events and erosion since the early Triassic period have caused extensive variability in the depth and thickness of the Barren Measure Shale Formation. It is estimated that approximately 7 tcf of technically recoverable shale gas is available in this basin out of the estimated reserves of 33 tcf.

42

Energy Security and Economic Development in India

Along with the Cambay Basin, the Damodar Valley Basin is a priority basin for shale gas exploration in India. In late September 2010, the ONGC spudded the country’s first shale gas well, RNSG-1, in the Raniganj Sub-basin. The well was completed in mid-January 2011, with reports of encountering gas flows from the shale at approximately 5600 ft. This well was the first of a four-well research and development (R&D) programme in the basin. The plan calls for an additional well in the Raniganj Sub-basin and an two additional wells in the Karanpura Sub-basin by March 2012.21 There have been traces of the availability of shale gas in the upper Assam Basin, Pranhita–Godavari Basin, Vindhyan Basin, and Rajasthan Basin, but further explorations are needed to discover these new resources.

POWER SECTOR

Installed Generation Capacity As on 31 August 2011, the total installed generating capacity of utilities in India increased to 181 508 MW. More than 80 000 MW of new power capacity has been under construction and the Twelfth Fiveyear Plan targets to add an additional capacity of 100 000 MW. India added the highest ever record capacity of 12 160 MW in the power sector during 2010/11, which is the highest in a single year since Independence.22 The energy and peaking shortages in the country have come down from 10% at the start of the plan to 7.5% and 10% as on 31 March 2011. Power (electricity) remains a key element of infrastructure essential for delivering the targeted growth levels of gross domestic product (GDP). Generation of electricity is expanding at a faster pace than budgeted in the Tenth Five-year Plan, although at a slower pace than the demand growth, leading to continued peak and energy shortage in the country. At present, power shortage is 3.67% and peak shortage is 7.2%. Loss of energy during transformation, transmission and distribution, and due to unaccountability reduced from 33.98% to 28.65% during the same period. Table 15 shows the increase in energy generation from 2007/08 to 2009/10 and the targets for the Eleventh and Twelfth Plans.

India’s Energy Resources

Table 15

43

Power generation by utilities (billion KWh)

Category

2007/08

2008/09

2009/10

Eleventh Plan target (MW)

Twelfth Plan target (MW)

Power generation*

704.5

723.8

771.551

—

—

i. Hydroelectric

123.4

113.0

106.680

16 553

30 000

ii. Thermal

559.0

590.0

640.876

58 597

40 000

iii. Nuclear

16.8

14.8

18.636

3 380

12 000

5.3

5.9

5.358

iv. Bhutan import

—

—

* Excludes generation from captive and non-conventional power plants and thermal power plants below 20 MW units and hydropower plants below 2 MW.

Ultra-mega Power Projects Sixteen ultra-mega power projects (UMPPs) with an investment requirement of $4.5 billion and a power generation of 4000 MW each have been identified for development under the international competitive bidding route. Four UMPPs, namely, Sasan in Madhya Pradesh, Mundra in Gujarat, Krishnapatnam in Andhra Pradesh, and Tilaiya in Jharkhand have already been awarded.23 A 660 MW unit of the Sasan UMPP and two 800 MW units of the Mundra UMPP are expected to be commissioned in the Eleventh Five-year Plan. In respect of the UMPP at Sarguja district in Chhattisgarh, all request for qualification (RfQ) activities have been completed. For the UMPP in Sundergarh district, Odisha, most of the essentials for issuing RfQ are already in place, except issuance of Section 4 Notification. With respect to the UMPP in Tamil Nadu, the site has been finalized at Cheyyur, along with the captive port, which is under finalization. For the second UMPP in Andhra Pradesh, the site at Nayunipalli, Prakasam district has been finalized by the Central Electricity Authority (CEA)/Power Finance Corporation (PFC) in consultation with the state government. For UMPPs to be located in Karnataka and Maharashtra, the second UMPP in Gujarat, and two additional UMPPs in Odisha, requisite inputs regarding obtainable land and water linkage are being examined.

Rajiv Gandhi Grameen Vidyutikaran Yojana The Government of India launched the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) in April 2005, which aims at

44

Energy Security and Economic Development in India

electrifying all un-electrified villages and providing access to electricity to all rural households over a period of four years.24 This programme has been brought under the ambit of Bharat Nirman. Under the RGGVY, 90% capital subsidy will be provided for establishing electricity distribution infrastructure, including rural electricity distribution backbone (REDB) with at least a 33/11 kV sub-station, village electrification infrastructure (VEI) with at least a distribution transformer in a village or hamlet, and decentralized distributed generation (DDG) where grid supply is not feasible. The remaining 10% will be provided as loan assistance on soft terms by the Rural Electrification Corporation (REC). Under this programme, electrification of un-electrified below poverty line (BPL) households will be financed with 100% capital subsidy of `1500 per connection in all rural lodgments. The management of rural distribution is mandated through franchisees. The services of central public sector undertakings (CPSU) are available to states for assisting them in the execution of rural electrification projects.

Hydropower Supply India is endowed with rich hydropower potential. It ranks fifth in the world in terms of usable potential. This is distributed across six major river systems, namely, Indus, Brahmaputra, Ganges, the central river systems, and the east- and west-flowing river systems of South India. The Indus, Brahmaputra, and Ganges together account for nearly 80% of the total potential. The economically exploitable potential from these river systems through medium and major schemes has been assessed at 84 044 MW at 60% load factor corresponding to an installed capacity of 150 000 MW of which less than 30% has been harnessed till date. The potentials of hydropower by basin have been depicted in Table 16. As per the reassessment study carried out by the CEA, the identified hydroelectric potential of the country (having an installed capacity above 25 MW) is 145 320 MW. As of now, 172 schemes with an installed capacity of 37 367 MW are under operation, 46 (installed capacity 13 785 MW) are under construction, 31 (installed capacity 16 087 MW) have been approved by the CEA, detailed project reports (DPRs) of 44 (installed capacity 15 441 MW) have been prepared and are under various stages of examination, and 108 schemes (installed capacity

India’s Energy Resources

Table 16

45

Potential and status of development at 60% load factor as on 1 January 2005, by basin

Basin

Potential (MW)

Potential development (MW)

Potential under development (MW)

Balance Balance potential potential (%) (MW)

Indus Basin

19 988

3 731

1 156

14 701

73.55

Ganga Basin

10 715

1 901

1 367

7 447

69.50

Central Indian rivers

2 740

1 060

1 147

533

19.45

West-flowing rivers

6 149

3 704

41

2 404

39.09

East-flowing rivers

9 532

4 168

144

5 220

54.76

Brahmaputra Basin

34 920

661

1 085

33 175

95

Total

84 044

15 225

5 339

63 480

75.53

Source Ramanathan, K., and Abeygunawardena, P. 2007. Hydropower Development in India: a sector assessment. Philippines: Asian Development Bank

41 945 MW) are under survey and investigation. The hydro capacity addition of 15 627 MW planned for the Eleventh Five-year Plan has been revised to 8237 MW in the Mid-Term Appraisal (MTA) of the Plan.25 Of this, 3921 MW has been added till 31 December 2010. India has an identified small hydropower (up to 25 MW) potential of nearly 10 000 MW distributed over 4000 sites. It is estimated that there is still an unidentified potential of almost 5000 MW. Nearly 1500 MW of potential has already been tapped, and projects amounting to around 600 MW are under construction. Apart from India’s own hydropower potential, the neighbouring countries of Nepal and Bhutan also have huge potential for hydropower. Nepal is endowed with abundant water resources and suitable geopolitical features that provide ample opportunities for hydropower production in Nepal. The Ministry of Energy, Nepal has projected the potential for hydropower generation at 83 000 MW. Similarly, the Department of Energy of the Ministry of Trade and Industry of Bhutan has estimated a potential of 30 000 MW. These capacities of potential energy are far in excess of their domestic demands.

46

Energy Security and Economic Development in India

The main reasons for the slow development of hydropower generation include difficult and inaccessible potential sites, difficulties in land acquisition, rehabilitation, environmental and forest-related issues, inter-state issues, geological surprises, and contractual issues. Privatesector participation in hydropower projects has increased; there are 14 schemes with an installed capacity of 4383 MW under construction in the private sector. Private developers have been allotted 129 schemes with an installed capacity of 36 123 MW by states, which are still to be taken up for construction. The bulk of the dormant potential, which is in the Himalayan region, is yet to be tapped. The new Hydro Policy 2008 goes a long way in balancing the developer’s concerns, providing the project developer in the hydropower sector a reasonable and quick return on investment merchant sale of up to a maximum of 40% of the salable energy. The salient features of the new Hydro Policy 2008 include the following: a level-playing field for private hydropower projects; exemption from tariff-based competitive bidding up to January 2011 for private hydro projects; facility of merchant sale of up to 40% of the saleable energy for private developers; an additional 1% free power over and above 12% to be earmarked for a local area development fund; each project-affected family (PAF) to get free 100 units of electricity every month for a period of 10 years after commissioning of the project; and 10% of the state contribution under the RGGVY for electrification of the affected area to be borne by project authorities.

Nuclear Power Supply Nuclear energy is one of the cleanest fuel sources of energy. At present, nuclear power contributes to about 2.4% of the electricity generated in India. During 2007/08, only 25% (220 MWe) of the targeted capacity (880 MWe) was added from nuclear power. The government has planned to build eight 700 MWe nuclear reactors to bolster the nuclear power capacity in the country. This would add a capacity of 5600 MWe and take the overall figure to 9720 MWe. At present, the country is facing a scarcity of uranium fuel, due to which the existing reactors are operating at 50% capacity. India’s nuclear power capacity is projected to rise to 8 GW by 2015 and 17 GW by 2030.

India’s Energy Resources

47

India was the first developing country to have nuclear power plants. The Indian nuclear power programme commenced in 1969 with the building of the twin reactor units of the Tarapur Atomic Power Station (TAPS) with boiling water reactors (BWRs) from the USA. The Indian nuclear programme was conceived based on unique sequential three-stage and associated technologies, essentially to optimally utilize the indigenous nuclear resource profile of modest uranium and abundant thorium resources. This sequential threestage programme (Figure 2) is based on a closed fuel cycle, where the spent fuel of one stage is reprocessed to produce fuel for the next stage. The closed fuel cycle thus multiplies manifold the energy potential of the fuel, thereby greatly reducing the quantity of the waste generated. The first stage comprises pressurized heavy water reactors (PHWRs) fuelled by natural uranium.26 Natural uranium contains only 0.7% of U235, which undergoes fission to release energy (200

Figure 2 Three-stage power programme

48

Energy Security and Economic Development in India

MeV/atom). The remaining 99.3% of natural uranium comprises U238, which is not a fissile material. However, it is converted in the nuclear reactor to fissile element Pu239. In the fission process, among other fission products, a small quantity of Pu239 is formed by transmission of U238. The second stage comprising fast breeder reactors (FBRs) is fuelled by a mixed oxide of U238 and Pu239, recovered by reprocessing of the first stage spent fuel.27 In FBRs, Pu239 undergoes fission, producing energy, and again producing Pu239 by transmutation of U238. Since the FBRs produce energy and reproduction of fuel, they are termed breeders. In fact, FBRs produce more fuel than they consume. Over a period of time, plutonium inventory can be built by feeding U238. The third stage consists of reactors based on U233–Th232 cycle.28 Once sufficient inventory of Pu239 is built up during the second stage, Th232 is introduced as a blanket material to be converted to U233. This U233 along with thorium will be used as fuel in the third stage of reactors, thus exploiting the vast potential of the enormous thorium reserves in our country. The first stage began with a supply of 220 MWe PHWRs at the Rajasthan Atomic Power Station (RAPS)-I. However, consequent to the conductance of the peaceful nuclear experiment at Pokhran in 1974, Canadian support was withdrawn to the RAPS-II project, while under construction. France too followed suit by refusing to supply fuel for the fast breeder test reactor (FBTR), which was under construction.29 The USA also expressed its inability to supply fuel for the TAPS. However, these embargoes spurred the growth of indigenous capacity for developing substitutes. These indigenous efforts led to the completion of not only RAPS-II, but also resulted in commissioning several other projects subsequently, which included the completion of an FBTR in 1984. An important achievement in this direction was the fabrication of nuclear fuel. Considering the sequential nature of the indigenous nuclear programme and the unfortunate circumstances of embargoes during each stage, it is expected that considerable time will be taken for direct thorium utilization. Consequently, an innovative design of reactors to directly use thorium is also in progress, in parallel to the three-stage programme. As part of this strategy, technologies like accelerated driven systems (ADS) and advanced heavy water reactors (AHWRs)

India’s Energy Resources

49

are being developed. The ADS is essentially a subcritical system using high energy particles for fission. The AHWR is another innovative concept that will act as a bridge between the first and third stages to advance thorium utilization without undergoing the second stage of the three-stage programme. It uses light water as coolant and heavy water as moderator. It is fuelled by a mixture of Pu239 and Th232 with a sizeable amount of power coming from Th232. A small beginning has also been made for the third stage of operation with the successful running of the Kamini research reactor in Kalpakkam based on U233 fuel, which is derived from thorium. This fuel was bred, reprocessed and fabricated indigenously. Setting up of light water reactors (LWRs) through external cooperation and fuelled by imported enriched uranium has been introduced as additionalities to the indigenous nuclear power programme. Ensuring a continuous supply of reliable qualified fuel for the reactors is vital for maintaining a nuclear power programme. Fabrication of fuel for nuclear reactors is a complex technology demanding a high level of competence in process engineering and technology, extractive and physical metallurgy, materials and manufacturing technology, modern quality control and inspection based on non-destructive testing (NDT) techniques. During the last four decades, a wide variety of metallic, ceramic, and dispersion fuels have been developed and fabricated on an industrial scale at the Bhabha Atomic Research Centre (BARC) and the Nuclear Fuel Complex (NFC). Zircaloy clad, high-density natural uranium oxide “pellet-pins”, is the fuel for the 220 MWe and 500 MWe PHWRs in India, and these have been fabricated on an industrial scale at the NFC over the last two decades. An important achievement was the fabrication of mixed carbide fuel at the BARC. This indigenously designed and developed fuel is unique as it is being used as the driver for the first time anywhere in the world. India also developed a plutonium–uranium mixed oxide fuel, as well as the facilities for its industrial scale production as an alternative to the enriched uraniumbased fuel for TAPS. At present, India has six nuclear power plants with a total capacity of 4120 MWe. These stations together generated 14 716 million units (MUs) of electricity in 2008/09. Another five units, with a combined capacity of 2660 MWe, are expected to be operational during the Eleventh Plan period.

50

Energy Security and Economic Development in India

The operating nuclear power units are TAPS Units 1 and 2 (2 × 160 MW BWRs), TAPS Units 3 and 4 (2 × 540 MW PHWRs), RAPS Units 1 to 6 (100 MW, 200 MW, and 4 × 220 MW PHWRs), Madras Atomic Power Station Units 1 and 2 (2 × 220 MW PHWRs), Narora Atomic Power Station Units 1 and 2 (2 × 220 MW PHWRs), Kakrapar Atomic Station Units 1 and 2 (2 × 220 MW PHWRs), and Kaiga Generating Station Units 1 to 4 (4 × 220 MW PHWRs). The units under construction are Units 1 and 2 (2 × 1000 MW PWRs) of the Kudankulam Nuclear Power Project and Units 3 and 4 (2 × 700 MW PHWRs) of the Kakrapar Atomic Power Project. First pour of concrete of Units 7 and 8 (2 × 700 MW PHWRs) of the Rajasthan Atomic Power Project is expected in mid-2011. Uranium Sources of India The uranium production in our country to cater to indigenous need made an exciting beginning with the formation of the Uranium Corporation of India Ltd (UCIL) in 1967 under the Department of Atomic Energy.30 The operation was launched with the commissioning of an underground mine and ore processing plant at Jaduguda (1968) in Jharkhand (then Bihar). Later, in line with the requirement of uranium, new underground mines at Bhatin (1987), Narwapahar (1995), Turamdih (2003), Bagjata (2008), and an opencast mine at Banduhurang (2009) were commissioned. All these operating uranium mines of the country are within 25 km from Jaduguda in Jharkhand. Ore from all these deposits is being processed in two central plants located at Jaduguda and Turamdih. These plants adopt an acid leaching route following an indigenously developed flow sheet. The plant at Jaduguda has been expanded thrice with a capacity to process 2500 tonnes of ore per day. Keeping in view the nation’s endeavour to expand the nuclear energy base, new uranium mines and processing plants are being constructed not only in Jharkhand but also in other parts of the country. One more underground mine at Mohuldih in Jharkhand is under construction to supply additional ore to the plant at Turamdih which is under expansion to process 4500 tonnes of ore per day. One large underground mine and a process plant (alkali leaching under pressure) have been taken up for development at Tummalapalle in Andhra Pradesh.

India’s Energy Resources

51

After successful surface exploration, exploratory mining and ascertaining the viability of regular mining operations, an underground mine and a process plant adjacent to the mine have been planned at Gogi in Karnataka. The plant at Gogi has been planned to process using the alkali leaching route. Pre-project activities are in full swing and this project is expected to be in operation during the Eleventh Plan period. Pre-mining activities are also in an advanced stage to develop uranium reserves at Lambapur-Peddagattu in Andhra Pradesh. Three underground mines and an opencast mine have been planned for development. A large sandstone-hosted uranium deposit at Kyelleng-Pyndengsohiong, Mawathabah (former name Domiasiat) in Meghalaya in the north-eastern parts of the country has also been planned for development using opencast mining methods. Ore from both these sites will be processed using the acid leaching route in the plant to be constructed at the respective mine sites. Quite a few small to medium, low grade uranium deposits have also been recently located in different parts of the country; notable among them are Chitral and Kuppunur in the northern part of the Kadapa Basin and carbonate-hosted small deposits around Tummalapalle in the south-west part of the Kadapa Basin (Andhra Pradesh), Wahkyn in Mahadek Basin (Meghalaya), Rohili-Ghateswar in Aravallis (Rajasthan), and Dishnur in Karnataka. Development of these deposits after due techno-economic evaluation is expected to be taken up at an appropriate time. The major deposit types in different areas identified so far are as follows. • Shear-controlled vein type deposits • Sandstone-type deposits • Strata-bound uranium deposits • Unconformity-related uranium deposits • Fracture-controlled uranium mineralization The total U3O8 resource identified in the above areas is about 103 552 tonnes of which Jharkhand accounts for about 45%, Andhra Pradesh 27%, Meghalaya 17%, Rajasthan and Karnataka 4% each, and remaining in other states (as of March 2006). Thorium Resources of India India’s thorium reserves have been estimated at 360 000 tonnes, a figure which will increase substantially as further exploration

52

Energy Security and Economic Development in India

confirms new reserves.31 As a result, India has been developing nuclear technology centred on the thorium fuel cycle. At the Indira Gandhi Centre for Atomic Research (IGCAR) in Kalpakkam, southeast India, the world’s first thorium-fuelled reactor, Kamini, achieved criticality in October 1996. Kamini, which was constructed jointly by the IGCAR and BARC in Trombay, is a 30 kWh experimental reactor powered by U233. Two LWRs of 1000 MWe each are under construction in Kudankulam in technical cooperation with Russia. The long-term plan for India is to generate its energy from an AHWR that utilizes the country’s vast thorium reserves. While India has vast thorium resources, it lacks the technology to use the raw material. Disadvantageously, the availability of uranium resources in India is very limited, while the technology in India is advanced. At present, the country has a small nuclear power installed capacity. Huge scope exists for capacity enhancement in the coming years. This initiative can add great comfort to the energy supply chain.

Indo–US Nuclear Deal The Indo–US nuclear deal, popularly known as the 123 Agreement, was inked on 11 October 2008, thereby lifting the three-decade-old ban on India for nuclear trade. India has received approval to buy fuel and technology from the International Atomic Energy Agency (IAEA) and Nuclear Suppliers Group (NSG), which control the global atomic trade. This agreement sets the terms under which India and the USA will cooperate in the “use of nuclear energy for peaceful purposes”.32 Under this agreement, the USA will help India in meeting its uranium requirement for use for peaceful purposes. It will also help India in persuading the NSG countries to make uranium available to India. The agreement also allows India to continue to enjoy the right to reprocess uranium. It, however, states that India will bring into being a new national reprocessing facility, which will be dedicated to reprocessing safeguarded nuclear material under IAEA safeguards. The agreement would also enable India to freely engage with NSG countries for bilateral trade in reactor technology and fuel. It would also boost the existing capacity through import of high-capacity reactors. It would facilitate the import of uranium, thereby enabling reactors, which currently run on reduced capacity, to operate in

India’s Energy Resources

53

full capacity. India would also effectively be able to sell indigenous technology to other developing countries. The primary assignees of this deal include the Nuclear Power Corporation of India Ltd, which has already started negotiations with global atomic power plant manufacturers, including Areva, GE, Westinghouse, and Rosatom. The National Thermal Power Corporation (NTPC) and a host of other private players, such as the Tatas, Reliance Power, the Essar Group, the Vedanta Group, and the GMR Group, are also planning to enter the nuclear power generation segment soon.

RENEWABLE ENERGY India is richly bestowed with renewable sources of energy such as sunlight, wind, and biomass. These sources are increasingly contributing to the national energy mix. The share of renewables in the total electricity generation in India increased from 0.4% in 2001/02 to 3.5% in 2007/08. The country has been able to achieve significant capacity addition in recent years from renewable energy sources. As of March 2009, the cumulative grid-interactive powergenerating capacity from renewable energy sources was 13 242 MW. However, India still has a large untapped potential of renewable energy sources. Besides electricity generation, renewable energy technologies (RETs) have benefits in terms of meeting cooking and other energy requirements in an environmentally benign manner. It is a universal fact that renewable energy sources have the potential to provide clean and inexhaustible energy that is accessible to all. RETs have been identified by the Intergovernmental Panel on Climate Change (IPCC) as one of the key mitigation technologies for energy supply, transport, buildings, agriculture, and waste management. The Government of India initiated its renewable energy programme in the late 1970s, much before there was a global surge for renewables. The Department of Non-conventional Energy Sources was established in 1982 and subsequently upgraded to a full-fledged Ministry of Nonconventional Energy Sources in 1992, which has now been renamed Ministry of New and Renewable Energy (MNRE). Renewable energy has also been given a prominent place in India’s National Action Plan on Climate Change (NAPCC). The availability and distribution of various sources of renewable energy described as follows will give a fair idea of India’s strengths in this sector.

54

Energy Security and Economic Development in India

Wind Energy Wind energy is the fastest growing renewable energy sector in the country, with a cumulative development of over 13 000 MW capacity.33 It accounts for nearly 70% of the installed capacity in the renewable energy sector in the country. The Indian market grew by almost 68% on a year-on-year basis with 2139 MW of new capacity installed between January and December 2010. This made India the third largest annual market for 2010 after China and the USA. With more than 13 GW of total installed capacity at the end of 2010, India ranks fifth in the world in terms of cumulative installed capacity after Germany, USA, China, and Spain. India exports indigenously produced wind turbines and turbine blades to the USA, Europe, Australia, China, and Brazil. The Eleventh Five-year Plan targeted to add 9 GW of wind energy. During the first three years of this plan period ending March 2010, India added 4.6 GW of wind power capacity. According to the Indian Wind Energy Outlook 2011 brought out by the Global Wind Energy Council (GWEC), by the end of 2015, between 24.7 GW and 29 GW will be installed in India; under the moderate scenario this would reach almost 46 GW by 2020 and 108 GW by 2030. In this scenario, about $9 billion would be invested in wind power development in India every year by 2020, representing a quadrupling of the 2009 investment figures. Employment in the sector would grow from the currently estimated 28 000 jobs to over 84 000 by 2020 and 113 000 by 2030. The advanced scenarios projected that by 2020, India could have 65 GW of wind power in operation, employing 170 000 people and saving 173 MT of CO2 emissions each year. Investment by then would be to the tune of $10.4 billion per year. The World Institute of Sustainable Energy (WISE) estimates that deploying just the current generation of wind turbines could yield a potential onshore wind power capacity of 65–100 GW.34 Table 17 provides an overview of the share of different states in installed capacity (MW) and the cumulative energy generation in million units. Among the states, Tamil Nadu ranks the highest both in terms of installed capacity and in terms of energy generation from wind with shares of 41.8% and 5.34%, respectively. Other states like Gujarat, Maharashtra, and Rajasthan have also registered significant growth.

India’s Energy Resources

Table 17

55

Generation and installed capacity by state

State

Cumulative generation (MU)

Cumulative installed capacity (MW)

Andhra Pradesh

1 451

138.4

Gujarat

8 016

1 934.6

Karnataka

9 991

1 517.2

554

230.8

11 790

2 108.1

3 938

1 095.6

41 100

5 073.1

110

28.0

76 950

12 125.8

Madhya Pradesh Maharashtra Rajasthan Tamil Nadu Kerala Total (up to 31 March 2010)

The Centre for Wind Energy Technology (CWET) published the Indian Wind Atlas in 2010, showing large areas (Figure 3) with an annual average wind power densities of more than 200 W/m2 at 50 m above ground level. This is considered a benchmark criterion for establishing wind farms in India according to the CWET and the MNRE. The potential sites have been classified according to the annual mean wind power density ranging from 200 W/m2 to 500 W/m2. Most of the potentially assessed sites have an annual mean wind power density between 200 W/m2 and 250 W/m2 at 50 m above ground level. The Indian Wind Atlas has also projected the Indian wind power installable potential (name plate rating) as 49 130 MW at 2% land availability. This is seen as a conservative estimate of the wind power potential of India. Comparative wind power development across some of the Indian states assessed by the WISE can be seen in Table 18. Offshore wind development is a relatively new phenomenon, and Europe is the only sizeable market at present, with a total offshore capacity of 3 GW. Special construction requirements make offshore wind power 1.5–2.5 times more expensive than onshore. This in turn makes large-scale offshore deployment difficult in developing regions. The current average rated capacity of offshore wind turbines is 2.5 MW as compared to the average onshore wind turbine capacity of 1.06 MW.

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Energy Security and Economic Development in India

Figure 3 Wind power density map Source Indian Wind Atlas (2010)

India’s offshore wind capacity is yet to be assessed. The studies conducted by CWET at Dhanushkodi in Tamil Nadu have recorded a good potential of offshore wind density of 350–500 W/m 2. Since offshore power generation is 1.5–2.5 times more expensive than that of the onshore, large-scale investments are required in this area. The ONGC has already announced its plan to tap offshore wind power. Global wind energy majors like Areva, Siemens, and GE have also announced their plans to explore the offshore wind energy in India. Tata Power is the first private sector player from India to submit a formal request to the Government of Gujarat and the Gujarat Maritime Board for approval of an offshore project in India.35

India’s Energy Resources

Table 18

57

Comparison of state-level wind power development in India

Particulars

Andhra Gujarat Karnataka Kerala Madhya Mahara Rajasthan Pradesh Pradesh shtra

Tamil Nadu

Total number of identified sites

32

40

26

17

7

39

8

45

Identified number of potential districts

7

9

9

1

5

13

5

11

Annual mean wind speed (m/s) at 50 m mast height

4.86 –6.61

4.33 –6.97

5.19 –8.37

4.41 –8.12

5.0 –6.25

4.31 –6.58

63

69

49

—

37

112

3 668

2

6

5

—

4

22

1

1

5 394

10 609

8 591

790

920

5.439 5 005

5 374

Number of 2010 wind-monitoring stations established till October Number of wind-monitoring stations operating (as of December 2010) Installable wind potential (MW) Presently installed capacity (MW) till December 2010

176.S

2 005.30 1 576.20

28

Untapped 5 217.20 8 603.80 7 014.90 762 installable potential (MW) as of December 2010

230.8

6892

4.02 –S.73

4.47 –7.32

2 201.60

1 353.40 5 502.90

3 237.40

3 671.70 –128.9

Note Based on government estimated potential for wind power, currently at least another 3000 MW of projects are in the pipeline in Tamil Nadu.

58

Energy Security and Economic Development in India

Biomass Biomass resources include agricultural residues, animal manure; wood wastes from forestry and industry; residues from food and paper industries; municipal green wastes; sewerage sludge; dedicated energy crops such as eucalyptus, sugar cane, beet, sorghum; starch crops such as corn and wheat; and oil crops, soya, sunflower, Jatropha, and palms. Biomass materials had been used since millennia for meeting myriad human needs, including energy. Until the middle of nineteenth century, biomass dominated the global energy supply with a 70% share.36 Among the biomass energy sources, wood fuels are the most prominent. Biomass currently provides about 10% of the world’s primary energy supplies. It is mostly used in developing countries as fuelwood or charcoal for heating and cooking. Due to the ability to replant wood, biomass combustion is a carbon-neutral process as the carbon dioxide would have previously been absorbed by plants from the atmosphere. According to the IEA Bioenergy (an organization set up by the International Energy Agency [IEA] that aims to develop and deploy bioenergy), bioenergy is defined as a material which is directly or indirectly produced by photosynthesis and is utilized as a feedstock in the manufacture of fuels and substitutes for petrochemical and other energy-intensive products. The IEA estimates indicate that bioenergy could sustainably contribute between 25% and 33% to the future global primary energy supply (up to 250 EJ) in 2050. In the total energy mix of India, biomass plays a vital role. It constitutes the major energy source in a majority of households in rural and semi-urban India. India consumed 158 MTOE of biomass in 2005, most of it by rural households.37 It is expected to reach 171 MTOE in 2015 and 194 MTOE in 2030. While demand for traditional biomass is expected to increase only marginally, the use of biomass in power generation and in biofuel production is projected to increase more quickly. In addition to power generation, biomass is also used in thermal gasifiers. The current installed capacity of thermal gasifiers is 87 MW. In addition to the direct use of biomass solids, biogas technology is primarily used in India in thermal applications. Biogas plants vary in capacity from 2 m3 to 10 m3. According to studies conducted by The Energy and Resources Institute (TERI) and others, biomass provides nearly 90% of the

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59

energy used in rural households and about 40% of the energy used in urban households.38 It was reported that non-commercial energy sources like fuelwood, chips, and dung cakes contributed around 30% of the total primary energy consumed in the country. It was also found that 46% of households using firewood and chips in rural India obtained these fuels at zero cash outlay; about 21.14% of households depended on home-grown stock and 23.7% made cash purchases; in comparison, two-thirds of urban households purchased firewood. Yet bioenergy does not figure in most energy analysis as they are confined to “non-commercial energy and…the data on bioenergy is inadequate and not up to date”. Dependence on biomass is expected to continue in India due to the projected increase in rural population in absolute terms and the continued lack of access to commercial fuels in rural areas, particularly for cooking. A study conducted by the IEA showed that 585 million Indians were dependent on biomass for cooking and heating in 2000. It is projected to increase to 632 million by 2030. In recent times, biomass is emerging as a competitive energy source through the introduction of modern biogas technologies such as biogas-based cogeneration and large-scale adoption of gasification and combustion technologies for electricity generation using a variety of biomass sources. The Bioenergy Council of India was set up to promote the development and deployment of bioenergy as a clean and sustainable energy solution that caters to the country’s needs for energy. Over the last decade, biomass power generation has acquired a major industry status attracting an annual investment of `6000 million and generating about 5000 MUs of electricity. A key programme of the MNRE is the biomass power/cogeneration programme under which a number of financial and fiscal incentives for the manufacture and installation of gasifier systems have been provided. These programmes are being implemented through state nodal agencies with the participation of energy service companies, cooperatives, panchayats, non-governmental organizations (NGOs), manufacturers, and entrepreneurs. The MNRE is currently implementing a project on “removal of barriers to biomass power generation in India” to lay a solid framework, thus catalysing a sustainable growth of the biomass power sector within the country through a series of technical, financial, and capacity-building measures.39 Despite the huge potential of bioenergy, only a small percentage of it can be harnessed in the country, as

60

Energy Security and Economic Development in India

can be seen from Table 19. Consumption of biomass is so pervading and diversely spread out in India that it is difficult to make precise estimates. Various technologies that have been in vogue in India are depicted at in Annexure IV.

Biogas Biomass gasifiers are quintessential for decentralized applications of power generation in rural areas, where either extending the grid is too expensive or the power demand is low. Agro-residues as well as biomass from agro-processing industries, such as tobacco waste and cashew-processing units, could be used for generating power with the help of a biomass gasifier. The viability of gasifier power plants is inveterately linked to the supply mechanisms of biomass. In many states of India, on account of the poor quality of the grid and its low reliability, industries are forced to switch to their own captive power generation by using diesel. Considering the relatively stable and low price of biomass, it makes a feasible option to couple diesel generator sets with gasifiers. Electric power generators operating on dual fuel (biomass and diesel), thus, offer a great potential for fuel saving and decentralized power generation. However, the focus has recently shifted to developing biomass power plants that do not consume diesel and operate solely on producer gas. Table 20 indicates the biogas potential of various states and the capacity achievements as on 31 December 2010. Table 19

Bioenergy potential and performance in India

Source/system

Estimated potential 2010

Achieved as on 31 March

Grid-interactive renewable power

(MW)

(MW)

• Biopower (agro-residues and plantations)

16 881

861.00

• Bagasse cogeneration

5 000

1 338.30

Captive/combined heat and power/distributed renewable power • Biomass/cogeneration (non-bagasse)

—

232.17

• Biomass gasifier

—

122.14

• Family-type biogas plants

12 million

4.185 million

Source MNRE (Ministry of New and Renewable Energy). 2010. Akshay Urja 3(4)

India’s Energy Resources

Table 20

61

Estimated potential and cumulative achievements for family-type biogas plants, by state, up to 31 December 2009 under the National Biogas and Manure Management Programme

State/union territory

Estimated potential (number of biogas plants)

Cumulative achievements as on 31 December 2009

1 065 000

452 499

7 500

2 818

Andhra Pradesh Arunachal Pradesh Assam

307 000

74 187

Bihar

733 000

125 688

Chhattisgarh

400 000

30 576

8 000

3 878

Gujarat

554 000

404 973

Haryana

300 000

53 345

Himachal Pradesh

125 000

45 488

Jammu and Kashmir

128 000

2 352

Jharkhand

100 000

4 408

Karnataka

680 000

411 241

Goa

Kerala

150 000

124 202

1 491 000

287 549

897 000

773 410

Manipur

38 000

2 128

Meghalaya

24 000

6 058

5 000

3 770

Madhya Pradesh Maharashtra

Mizoram Nagaland

6 700

3 743

Odisha

605 000

235 393

Punjab

411 000

101 705

Rajasthan

915 000

67 172

7 300

6 926

615 000

215 033

28 000

2 771

1 938 000

419 516

Sikkim Tamil Nadu Tripura Uttar Pradesh Uttarakhand

83 000

9 590

West Bengal

695 000

305 760

Andaman and Nicobar Islands

2 200

137

Chandigarh

1 400

97

Dadra and Nagar Haveli

2 000

169

12 900

679

4 300

573

– 12 339 300

7 608 4 185 442

Delhi Puducherry KVIC and others Total

62

Energy Security and Economic Development in India

Several studies have identified the existence of a number of barriers, as well as the inadequacies of policies, besides suggesting the measures to address them.40 These barriers are divided into technology-specific barriers and generic barriers. Technology-specific barriers include inputs of resources (woody biomass, rice husk, and cow dung), length of life cycle (short, medium, and long term), types of usage (cooking and thermal), and the maintenance required (daily, weekly, and monthly). Generic barriers include institutional, informational, financial, policy-related, and overall market barriers. Due to these various barriers, a significant percentage of the 4.2 million biogas plants present are not functional. A study by the Indian Institute of Technology (2002) indicates that only 77% of locally installed plants were fully functional. Bioenergy policies during the 1980s focused on technologies for (1) improving efficiency of traditional biomass use (for example, improved cooking stove programme); (2) increasing the supply of biomass (for example, social forestry, wasteland development); (3) enhancing the quality of biomass use through technologies (for example, biogas, improved cooking stoves); (4) introducing biomassbased technologies (for example, wood gasifiers for irrigation, biomass electricity generation) to deliver services provided by conventional energy sources; and (5) establishing institutional support for programme formulation and implementation. Following liberalization in 1992, a number of financial and fiscal incentives for the manufacture and installation of gasifier systems have been provided. Steps were also taken to encourage the participation of stakeholders.41

Biofuels Biofuels are renewable liquid fuels derived from biomass or biological raw materials. They have been proved to be good substitutes for oil in the transportation sector. Ethanol and biodiesel are two biofuels that have been gaining popularity. Ethanol Ethanol is produced from biomass such as sugar-containing materials (sugar cane, sugar beet, and sweet sorghum), starch-containing materials (corn, cassava, and algae), and cellulosic materials (bagasse, wood waste, agricultural, and forestry residues).

India’s Energy Resources

63

Its production is a very ancient activity linked with making potable alcohol. The liquor containing corn, grape juice, and molasses are fermented by adding yeast to it in batch fermenters for a number of hours (minimum 40 h) till fermentation gets completed with no increase in alcohol content. The fermentation process consists of the breaking of starch or cellulose chain into individual sugar molecules and then fermenting the sugar into ethanol and carbon dioxide.42 However, not more than 10% ethanol content can be obtained through fermentation, whereas the requirement either for consumption or industrial activity requires 95% purity. The water content in ethanol is also undesirable, particularly when added with diesel since it prevents mixing. To address this problem and also to ensure 95% purity, azeotropic distillation through solvent benzene or cyclohexane is used. Azeotropic distillation, however, considerably increases the production cost of ethanol. A cost-effective solution is found through the use of a molecular sieve to eliminate water by an adsorbent, properly known as pressure swing adsorption molecular sieve dehydration technology (MSDH). It uses a synthetic adsorbent to dehydrate alcohol and results in a high level of dryness with low energy requirement. While the calorific value of ethanol is lower than that of gasoline by 40%, it makes up through increased efficiency. It can be used as a 100% fuel, as there are no problems in designing an engine to run only on ethanol. However, due to compatibility as well as availability, its usage has been restricted to blending purposes only. Brazil uses ethanol as a 100% fuel in about 20% of vehicles and a 25% blend with gasoline is used in the rest of the vehicles. The USA uses 10% ethanol–gasoline blends whereas 5% blend is used in Sweden. Australia uses 10% ethanol–gasoline blend. In India, the use of 5% ethanol–gasoline blend has already been approved by the Bureau of Indian Standards (BIS) and the implementation is in progress. The raw material used to produce ethanol varies from sugar cereals, sugar beet to molasses in India. However, the major source of ethanol production is the country’s sugarcane—sugar molasses. The petroleum industry is keen on using ethanol as a fuel, as it is expected to benefit the oil industry besides sugarcane farmers. Ethanol is one of the best tools to fight vehicular pollution. It also contains 35% oxygen that helps in complete combustion of fuel and

64

Energy Security and Economic Development in India

thus reduces tailpipe emissions. It also reduces particulate emissions that pose health hazards. Ethanol, which improves the octane number, has high volumetric efficiency leading to increased power.43 It also has advantages of wider flammability limits and higher flame velocity. However, there are certain disadvantages manifested through (1) higher aldehyde emissions, (2) corrosiveness, affecting metallic parts, (3) higher latent heat of vaporization, which causes problems while starting the vehicle, (4) higher evaporation losses due to higher vapour pressure, and (5) larger fuel tanks due to lower calorific value. Blends above 15% ethanol would require a few engine modifications to address: • Corrosion problem of the metal parts • Compatible elastomers for oil seals and rubber components • Larger orifice for more flow of fuel through carburetor/injector • Retarding ignition timing • Increasing compression ratio to take advantage of higher cetane number of ethanol However, below its 10% value, the disadvantages are not serious and there is no need to modify the engine, that is, it would be compatible with the blends. Ethanol can be blended both in diesel as well as gasoline. The advantages and problems associated with the blends are summarized in the following paragraphs. Diesel–ethanol blend Diesel generation, in general, emits large quantity of particulate matter (PM), specially of size below 2.5 m, which being very small in size passes the protection system of the body to get lodged in the lungs causing a reduction in its vital capacity. More serious than this is the association of PM with unburnt oil, which is a potential carcinogen to humans or animals. For this reason, such particles are called respiratory particulate matter. In metros, diesel-driven vehicles are being phased out. A 15% ethanol blend reduces PM emission; however, the blend provides certain technical problems. Ethanol reduces the flash point of the blend to 13°C, that is, the level of pure ethanol, which is 50°C lower than that of diesel. The blend also reduces the lubricity of the fuel and increases the wear and tear of the piston rings and injector. The cetane number of ethanol is just 8 and so reduces the cetane number of diesel on

India’s Energy Resources

65

blending. The calorific value of ethanol is 42% lower than that of diesel on volume basis and would decrease the fuel economy and torque; a higher injector size would be needed to obtain the same peak power. Gasoline–ethanol blend The gasoline–ethanol blend is more in practice since ethanol increases the octane rating of the fuel without adding to pollution or unsustainability, thereby increasing the fuel efficiency. The higher latent heat of vaporization of ethanol compared to that of gasoline is expected to cause starting problems. But a 25% blend of ethanol in gasoline has been in use in Brazil for the last 25 years without any such problem. More than 10 billion litres of ethanol by way of gasoline–ethanol blend has been consumed there. Ten per cent ethanol blend in gasoline has also been in use in the USA for the last 18 years and no problem has been encountered as to drivability. Ethanol is corrosive in nature, absorbs moisture readily, and can affect metallic parts (ferrous/non-ferrous). However, a Phillips petroleum study using corrosion and swell tests has found that a 10% ethanol blend pose no compatibility problems in the various components of fuel systems. The experience of using ethanol-blended gases in Brazil and the USA shows no significant material problems even with older vehicles, and new vehicles, anyway, have better materials like fluoroelastomers to fight corrosion. With better combustion, ethanol blended gasoline provides a reduction in total hydrocarbon emissions, although there is a slight increase in the emission of acetaldehyde. The increase in acetaldehyde emission with 5% ethanol blend has been found to be marginal— 260 mg versus 233 mg per test cycle. Catalyst converters, now being used in vehicles, reduce aldehydes level by 10 times. Therefore, the problem is not considered serious. No limits have been set for aldehydes in ethanol by the European Union (EU), Brazil or the USA, as emissions are well within tolerable limits. In fact, formaldehyde emissions from methyl tertiary (MTBE) are more and of a greater degree of concern from the health angle. Biodiesel Biodiesel is a fatty acid ethyl or methyl easter made from virgin or used vegetable oils (both edible and non-edible) and animal fats

66

Energy Security and Economic Development in India

through trans-esterification. It is a diesel substitute and requires very little or no engine modifications up to 20% blend and only minor modifications for higher percentage blends. The use of biodiesel results in a substantial reduction in unburnt hydrocarbons, carbon monoxide and PM. Biodiesel is considered a clean fuel since it has almost no sulphur, no aromatics, and contains about 10% built-in oxygen, which helps it to burn fully. Its higher cetane number also improves combustion. Biodiesel contains no petroleum, but it can be blended at any level with petroleum diesel or create a biodiesel blend or can even be used in its pure form. Just like petroleum diesel, biodiesel operates in compression engines which essentially require very little or no engine modifications because biodiesel has properties similar to petroleum fuels. It can be stored just like petroleum diesel fuel and hence does not require separate infrastructure. While the share of biofuels in the overall global fuel consumption is still marginal (less than 1% in 2006), the growth rate of biofuel production is enormous. Between 2000 and 2005, worldwide production of bioethanol rose by 95% and biodiesel output even grew by 295% (IEA 2007). Biodiesel, as mentioned before, is obtained from any kind of vegetable oil like rapeseed, soybean, palm or sunflower oil, for example. With 28.3 billion litres, global production of ethanol is about six times higher than biodiesel production and, therefore, more relevant on the global scale. Demand for biofuel is rising, especially due to the mandatory blending requirements adopted by large energy consumer countries. To contribute to energy security and to abide by the requirements of the Kyoto Protocol, many countries have developed ambitious plans to further substitute biofuel for fossil fuel. In 2003, for example, the EU set targets for blending biofuel in the transport sector at a rate of 2% by 2005 and 5.75% by 2010. In addition, several European countries support the use of biofuels through tax reductions or higher blending requirements. The Energy Policy Act of 2005 formulated by the USA stipulated a target for blending 28.4 billion litres of biofuel by 2012. It is estimated that these measures will create a demand for an additional 9.2 MT of biofuel worldwide. The Indian biodiesel sector is different from biofuel activities in many other countries of the world. Straight vegetable oil (SVO), the raw material for biodiesel, is derived exclusively from non-edible

India’s Energy Resources

67

oil-bearing trees that can grow on less fertile land. This renders it more positive since the risks of food crop replacement can be avoided. Many small farmers and landless cultivators can generate additional income, and the plants can green barren lands. More than 300 different species of oil-bearing trees exist in India. All of them are naturally growing wild species that have not yet been cultivated and harvested systematically for oil production on a larger scale. According to the National Oilseeds and Vegetable Oils Development Board of the Ministry of Agriculture, there are about 10 species with economic potential for biodiesel production, including Jatropha curcas, Pongamia pinnata, Simarouba glauca, Azadirachta indica (Neem), and Madhuca indica (Mahua). Proponents of biodiesel in India focus almost exclusively on Jatropha and to a lesser extent on Pongamia. Other species have not received much attention. The focus on Jatropha is justified mainly on the basis of two arguments. First, Jatropha is a shrub, and it does not grow into a tree. Therefore, it is easier to harvest than large trees and has a shorter gestation period. Second, the seed collection period of Jatropha does not coincide with the rainy season in June–July, when most agricultural activities take place. This makes it possible for people to generate additional income during the slack agricultural season. Pongamia has become the second most important feedstock of the Indian biodiesel sector since this tree is traditionally planted in several states and, therefore, well known to people. The plant is not only a source of oil, but also serves as animal feed, manure, firewood, and medicine. The most important characteristic that distinguishes oil-bearing trees from other cash crops is that they require very few nutrients to survive and, therefore, can also be grown on less fertile land. Jatropha only needs a minimum of around 600 mm of rainfall per year and temperatures that do not go below 3°C. There are three ways of cultivating oil-bearing trees. They can be grown as boundary plantation, for example, around fields or along roads, railways, and canals. Second, they can be planted in monoculture as block plantations. Third, oil-bearing trees can also be cultivated through inter-cropping with other species, which is likely to happen when it is used for afforestation, but also possible when it is grown in fields. Boundary plantations of oil-bearing trees, especially of Jatropha and Pongamia, are already common in India, even if the seeds are not used for SVO or biodiesel production. There remains a

68

Energy Security and Economic Development in India

certain range up to which this kind of cultivation can be extended, but the amount of oilseeds produced will still remain marginal compared to the amount that could be reached through cultivation on regular plantations, either through monoculture or inter-cropping. These plantations can, in turn, be set up on three types of land: regular agricultural land, regular forestland, and unutilized or underutilized land (often called “wasteland”). Processing After fruits are harvested, the seeds, which contain the oil, are separated. There are two methods of extracting the oil from the ground kernels. In the first method, hand-powered machines or more mechanized expellers are used. These methods can extract 60% to 75% of the oil. Oil can also be extracted through chemical solvents that can extract 10% oil. In fact, combining both the methods is found to be more efficient. Once the oil is extracted, it is converted into diesel through trans-esterification.44 This process requires alcohol (usually methane and an alkaline catalyst, for example, sodium or potassium hydroxide). A two-stage chemical reaction first separates the SVO into free fatty acids and glycerol, and then merges the free fatty acids with methanol, generating fatty acid methyl ester, which is the chemical term for biodiesel. Glycerol remains as a by-product of the procedure. Trans-esterification units can have a large range of processing capacities, from small-scale biodiesel units to large-scale trans-esterification plants. Handling and storage of biodiesel, however, require certain professionalism, since it is toxic and inflammable. Consumption Both SVO and biodiesel are suitable for final consumption. SVO can be used for lighting (replacing petroleum in lamps) and cooking (in specially designed cooking stoves). It can also replace conventional diesel in engines (for example, electricity generators or water pumps). Since SVO has a very high viscosity, fuel injection pumps need to be modified, otherwise engines will abrade much faster. Hence, operational and maintenance costs of engines running on SVO are higher than those running on conventional diesel. The fuel properties of biodiesel, on the other hand, are better than those of SVO. Thus, replacing diesel with biodiesel instead of SVO reduces operational and maintenance costs. Some projects aiming at rural energy security use SVO for their machines and electricity generators, while others first carry out trans-esterification and use biodiesel for the same purposes.

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69

The National Policy on Biofuels announced by the Government of India in December 2009 envisaged a target of 20% blending of petrol and diesel with bioethanol or biodiesel by 2017, while setting a present target of 5%.45 The policy envisions a central role for biofuels in the energy and transportation sectors by bringing accelerated development and promotion of the cultivation, production and use of biofuels. The focus will be to utilize water and degraded forest and non-forest lands only for cultivation of shrubs and trees bearing nonedible oilseeds for production of biodiesel. To augment the availability of ethanol and reduce over-supply of sugar, the sugar industry has been permitted to produce ethanol directly from sugar juice. The shortfall in bioethanol blending is mainly attributed to the issues of availability due to limited production from molasses, competing demands, and pricing. The shortage of biodiesel is due to the lack of availability of basic raw material, that is, vegetable oil. An ad hoc procurement policy at the rate of `27.00 per litre has been set till the recommendations of the Expert Committee are approved by the National Biofuel Steering Committee and National Biofuel Coordination Committee. Several projects were taken up by different funding agencies to test the claims of growth of Jatropha and Karanj. There have been new learning about these crops, and the yields have been found to be at much lower scales. It is envisaged that efforts will rejuvenate the biodiesel programme, but by and large, it is concluded that the total contribution of biodiesel in the biofuel mix will not be very large. According to the study carried out by the MNRE, about 0.928 million hectares of wastelands have been cultivated with Jatropha in nine states up to July 2009.46 The study revealed that the states rarely followed scientific methods of cultivation and maintenance practices. As a result, the seed yields were very low. It was also found that the states had not created storage facilities for the seeds. Research institutions and universities engaged in the development of the quality of Jatropha were not asked by the states to provide technical support. The Department of Biotechnology has constituted a committee to review the status of R&D activities being implemented by various agencies, to identify gaps and priorities that need to be supported, to develop a clear road map and strategy for R&D efforts to meet the goals and targets of the National Biofuel Policy, and to develop

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Energy Security and Economic Development in India

different models of programme implementation and financing with special focus on public–private partnership, leveraging on global collaborations. The launch of the Biodiesel Mission by the Department of Land Resources was approved with the condition that the plantations already undertaken in different states will be evaluated. Accordingly, evaluation has been taken up and is in progress. The evaluation is also likely to determine the availability of wastelands suitable for raising plantations. The MNRE has initiated a programme on biofuels to develop technologies for the production of biofuels from various feedstocks and to use biofuels for various applications. The main objectives of the programme are as follows.47 • Development of technologies for converting different non-edible vegetable oils to biofuels and their applications in the automotive sector and for stationary applications • Field trials on the use of ethanol blends and other biofuels as transport fuel, including stationary applications • R&D activities to explore different routes of biofuel production, including development of second-generation technologies for production of biofuels • R&D and demonstration activities on production, conversion, and utilization of biodiesel • Provision of energy through non-edible vegetable oils to rural people in non-grid connected far-flung areas for lighting, agricultural operations, and other community-based stationary applications In view of the vast potential for the production of bioethanol from lignocellulosic substrates such as surplus crop residual, forestry, and agro-industrial wastes, the MNRE has constituted a core group of scientists on second-generation biofuels. The core group has helped in developing a strategy and approach for R&D leading to the commercial development of second-generation biofuels, and a coordinated research/demonstration/pilot plant programme on second-generation biofuels. These efforts include development of international collaborative projects. A call for proposals was issued inviting proposals in terms of the above-mentioned thrust areas from scientists, research institutes, and universities, both from public and private sectors. Out of 88 proposals received by the ministry, 14 proposals have been shortlisted for further consideration.

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The ministry had taken up 13 demonstration/test projects in remote un-electrified villages to meet their energy requirements of lighting and motive power using SVO-driven diesel engine gensets. The performance of the engine gensets has been evaluated. Considerable experience has been gained after the implementation of these projects, particularly in terms of operational problems with the gensets and problems relating to sustaining the projects. It was also suggested that trials be also undertaken on the use of SVO in tractors. Indian Standards (IS-15607) for Biodiesel (B 100) have already been evolved. The BIS has also published IS 2796:2008, which covers specifications for motor gasoline blended with 10% ethanol. The BIS is to review and update these standards. Field trials have been carried out on a diesel car with 20% blend of biodiesel produced from Pongamia oil with diesel. After covering about 25 000 km, the vehicle response has been found to be good and comparable with a typical diesel vehicle. Field trials have also been carried out on a diesel car with 5% blend of biodiesel produced from Jatropha oil with diesel. After covering 30 000 km, no deterioration in acceleration and operation was observed. Standards have been prepared under the aegis of the BIS for biofuels. R&D projects on algal biofuels, biomass gasification, and biomass pyrolysis have been initiated and some encouraging results have already started flowing in. Globally it is believed, and this is true for India as well, that no single technology programmes or biomass type can make a complete and full contribution to biofuels. The final mix in the biofuel basket will have contributions from different technologies and biomass type. Solar Energy Solar energy is extracted from sunlight. In fact, the sun is the primordial source of various forms of energy. Plants use sunlight to make food, animals eat plants for food, plants that decayed millions of years ago produced coal, oil, and natural gas that we use today. So fossil fuel is actually sunlight stored millions and millions of years ago. Solar energy can be used in a number of applications: heat (hot water building heat for cooking); electricity generation (photovoltaic, heat engines); desalination of seawater; and plant’s life cycle. The annual global radiation varies from 1600 kWh/m 2 to 2200 kWh/m 2, which is comparable to radiation received in the tropical and subtropical regions. The equivalent energy potential is about 6000 million GWh of energy per year. India is located in the

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equatorial sun belt of the earth, thereby receiving abundant radiant energy from the sun. In most parts of India, clear sunny weather is experienced 250 to 300 days a year. India is thus endowed with vast solar energy potential. About 5000 trillion kWh per year energy is incident over India’s land area with most parts receiving 4–7 kWh/ m2 per day. Hence, both solar thermal and solar photovoltaic can be effectively harnessed, providing huge scalability for solar energy in India. Solar energy is environmentally friendly as it has zero emissions while generating electricity or heat. From an energy security perspective, solar energy is the most secure of all sources, since it is abundantly available. Theoretically, a small fraction of the total incident solar energy (if captured effectively) can meet the entire country’s power requirements. It is also clear that given the large proportion of poor and energy unserved population in the country, every effort needs to be made to exploit the relatively abundant sources of energy available to the country. Solar thermal power generation can play a significant role in meeting the demand–supply gap for electricity, particularly for (1) rural electrification using solar dish collector technology, which can be synergized with biomass gasifiers for hot air generation; (2) integration of solar thermal power plants with existing industries such as paper, dairy or sugar industry, which has cogeneration units; and (3) integration of solar thermal power generation units with existing coal thermal power plants. Figure 4 shows the solar radiation levels in different parts of the country. It can be observed that although “Our vision is to make India’s economic development energy-efficient. Over a period of time, we must pioneer a graduated shift from economic activity based on fossil fuels to one based on non-fossil fuels and from reliance on non-renewable and depleting sources of energy to renewable sources of energy. In this strategy, the sun occupies centre stage, as it should, being literally the original source of all energy. We will pool our scientific, technical and managerial talents, with sufficient financial resources, to develop solar energy as a source of abundant energy to power our economy to transform the lives of our people. Our success in this endeavour will change the face of India. It would also enable India to help change the destinies of people around the world.” — Dr Manmohan Singh, Hon’ble Prime Minister of India, June 2008.48

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2

kWh/m 6.6 – 6.4 6.4 – 6.2 6.2 – 6.0 6.0 – 5.8 5.8 – 5.6 5.6 – 5.4 5.4 – 5.2 5.2 – 5.0 5.0 – 4.8 4.8 – 4.6 4.6 – 4.4

Figure 4 Solar radiation in India Source Garud, S., and I., Purohit. 2009. Making solar thermal power generation in India a reality: overview of technologies, opportunities, and challenges.

the highest annual global radiation is received in Rajasthan, northern Gujarat, and parts of Ladakh, parts of Andhra Pradesh, Maharashtra, and Madhya Pradesh also receive a fairly large amount of radiation as compared to many parts of the world especially Japan, Europe, and the USA, where development and deployment of solar technologies is maximum. Before we examine the solar energy scenario, it may be essential to understand various solar energy technologies that are in vogue. Solar Energy Systems Solar energy systems can be divided into two major categories: photovoltaic and thermal. Photovoltaic cells produce electricity directly, while solar thermal systems produce heat for buildings, industrial processes or domestic hot water. Thermal systems can also

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generate electricity by operating heat engines or by producing steam to spin electric turbines. Solar energy systems have no fuel costs, and hence most of their cost comes from the original investment in the equipment. Photovoltaic systems Photovoltaics convert sunlight directly into electricity using semiconductors made from silicon or other materials. A photovoltaic or solar cell is the basic building block of a photovoltaic (or solar electric) system. An individual photovoltaic cell is usually quite small, typically producing about 1 W or 2 W of power. To boost the power output, photovoltaic cells are connected together to form larger units called modules. Modules in turn can be connected together to form even larger units called arrays, which can be interconnected to produce more power (Figure 5). Because of this modularity, photovoltaic systems can be designed to meet any electrical requirement, no matter how large or how small. However, modules or arrays do not represent an entire photovoltaic system. It requires structures to erect the system on and components to “condition” the electricity produced, usually by converting it to alternative current electricity. All these items are referred to as balance of system (BOS) components. Combining the modules with the BOS components creates an entire photovoltaic system. Figure 6 shows how silicon modules generate power. Solar thermal energy Solar thermal power systems, also known as concentrating solar power (CSP) systems, use concentrated solar radiation as a high temperature energy source to produce electricity.

Cell

Module

Figure 5 Photovoltaic systems

Array

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PV array a

box

Figure 6 Silicon modules generating power

CSP technologies use mirrors to reflect and concentrate sunlight onto receivers that collect the solar energy and convert it to heat. This thermal energy can then be used to produce electricity via a steam turbine or heat engine driving a generator. These technologies are appropriate for applications where direct solar radiation is high. CSP technologies can be classified based on how the various systems collect solar energy and store the thermal energy produced. • Linear concentrator systems • Parabolic dish/engine systems • Power tower systems • Thermal storage • Solar chimney • Solar water heating • Solar space heating Linear concentrator systems In these systems, solar energy is collected through large mirrors that reflect and concentrate sunlight into a linear receiver tube that contains a fluid. The fluid is heated by the concentrated sunlight. This heat exchanger drives the generator to produce electricity. Steam can also be generated directly with heat exchangers. Linear concentrating collector fields consist of a large number of collectors in parallel rows, which are typically aligned in a north–south orientation to maximize both annual and summer time energy collection. With a single-axis sun-tracking system, this configuration enables the mirrors to track the sun from east to west during the day, ensuring that the sun reflects continuously onto the

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receiver tubes. Through linear concentrator systems, solar energy, is generally developed either through parabolic trough systems or linear Fresnel reflection systems.49 Parabolic trough systems In this system (Figure 7), the tube is fixed to the mirror structure and the heated fluid (either a heat-transfer fluid or water/steam) flows through and out of the field of solar mirrors to where it is used to create steam (or in case of a water/ steam receiver, sent directly to the turbine). Trough designs can incorporate thermal storage. In such systems, the collector field is oversized to heat a storage system during the day. The stored energy can be used in the evening or during cloudy weather to generate additional steam to produce electricity. Linear Fresnel reflector systems Flat or slightly curved mirrors mounted on trackers on the ground are configured to reflect sunlight onto a receiver tube fixed in space above these mirrors (Figure 8). A small parabolic mirror is sometimes added atop the receiver to further focus the sunlight. Parabolic dish/engine systems The dish/engine system is a CSP technology that produces relatively small amounts of electricity compared to other CSP technologies, typically in the range of 3 kW to 25 kW. A parabolic dish of mirrors directs and concentrates sunlight onto a central engine that produces electricity (Figure 9). The two major parts of the system are the solar concentrator and the power conversion unit. The solar concentrator, or dish, gathers the Steam condenser

Electricity

Thermal storage tanks Receiver

Generator Turbine Parabolic trough

Figure 7 Concentrator power plant using parabolic trough collectors Source TERI (The Energy and Resources Institute). 2008. Solar Energy Info-Kit 2008. New Delhi: TERI. Details available at

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Steam condenser

Electricity

Receiver Generator Turbine Linear Fresnel reflectors

Figure 8 A linear Fresnel reflector power plant Source TERI (The Energy and Resources Institute). 2008. Solar Energy Info-Kit 2008. New Delhi: TERI. Details available at

Two

Figure 9 Schematic parabolic dish system Source Garud, S., and I., Purohit. 2009. Making solar thermal power generation in India a reality: overview of technologies, opportunities, and challenges.

solar energy coming directly from the sun. The resulting beam of concentrated sunlight is reflected onto a thermal receiver that collects the solar heat. The dish is mounted on a structure that tracks the sun continuously throughout the day to reflect the highest percentage of sunlight possible onto the thermal receiver. The power conversion unit includes the thermal receiver and the engine/generator. The thermal receiver absorbs the concentrated beams of solar energy, converts them to heat, and transfers the heat to the engine/generator. The engine/generator system is the subsystem that takes the heat from the thermal receiver and uses it to produce electricity.

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Power tower systems Power tower systems are numerous large, flat, sun-tracking mirrors, known as heliostats, which focus sunlight onto a receiver at the top of a tower (Figure 10). A heat-transfer fluid heated in the receiver is used to generate steam, which in turn is used in a conventional turbine generator to produce electricity. Thermal storage A challenge facing the widespread use of solar energy is the reduced or curtailed energy production when the sun sets or is blocked by clouds.50 Thermal energy storage provides a workable solution to this challenge. In a CSP system, the sun’s rays are reflected onto a receiver, creating heat that is then used to generate electricity. If the receiver contains oil or molten salt as the heat-transfer medium, the thermal energy can be stored for later use. This allows CSP systems to be a cost-competitive option for providing clean, renewable energy. Presently, steam-based receivers are prevalent, although they cannot store thermal energy for later use. Solar chimney This is a fairly simple concept. As shown in Figure 11, the solar chimney has a tall chimney covered with glass at the centre of the field. Solar heat generates hot air in the gap between the ground and the gall cover, which is then passed through the central tower to its upper end due to density difference between the relatively cooler air outside the upper end of the tower and hotter air inside the tower. While moving up, this air drives wind turbines located inside the tower. These systems need relatively less components and were supposed to be cheaper. However, low operating efficiency and the need for a tall tower of height of the order of 1000 m make this technology a challenging one. A pilot solar chimney project was installed in Spain to test the concept. This 50 kW capacity plant was successfully operated between 1982 and 1989. Figure 11 shows a photograph of this plant. Recently, EnviroMission Ltd, an Australian company, has started work on setting up the first of five projects based on the solar chimney concept in Australia. Solar water heating The use of solar water heating systems and solar electric systems has become quite popular across the globe. One of the most cost-effective ways to include renewable technologies into a building is by incorporating solar hot water. A typical residential solar water-heating system reduces the need for conventional water heating by about two-thirds. It minimizes the expense of electricity or fossil fuel to heat the water and reduces the associated environmental impacts. Most solar water-heating systems for buildings have two main parts: (1) a solar collector and (2) a storage tank. The most

Tower

Concentrated solar radiation Concentrated radiation

Volumetric receiver

Blower

Air circuit

700°C

200°C

Pump Feedwater

Steam generator Steam

G

Heat rejection

Steam circuit

Turbine

Source  Garud, S., and I., Purohit. 2009. Making solar thermal power generation in India a reality: overview of technologies, opportunities, and challenges.

Figure 10 Schematic of power tower systems

Direct solar radiation

Receiver

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Figure 11 50 kW solar chimney pilot project, Manzanares Source Garud, S., and I., Purohit. 2009. Making solar thermal power generation in India a reality: overview of technologies, opportunities, and challenges.

common collector used in solar hot water systems is the flat-plate collector. Solar water heaters use the sun to heat either water or a heat-transfer fluid in the collector. Heated water is then held in the storage tank ready for use, with a conventional system providing additional heating as necessary. The tank can be a modified standard water heater, but it is usually larger and very well insulated. Solar space heating Building space is also heated by direct sunlight through designs features such as large windows and walls. Space heating is also done through space heating systems that collect and absorb solar radiation combined with electric fans and pumps. Space cooling Cooling and refrigeration can be accomplished using thermally activated cooling systems (TACS) driven by solar energy. These systems can provide year-round utilization of collected solar heat, thereby significantly increasing the cost effectiveness and energy contribution of solar installations. They are sized to provide 30% to 60% of the building-cooling requirements using solar energy, with the remainder usually dependent on natural gas. The TACS available for solar-driven cooling include absorption systems and desiccant systems. The study shows that savings of up to 24% is possible during periods of high insolation for feedwater heating to 241°C. While the initial investment costs of harvesting solar power are relatively high compared to other sources of energy, there are a number of off-grid

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solar applications that are proving to be cost effective. Efforts should be focused on R&D so that these costs are minimized.

Solar Thermal Power Generation Programmes in India In India, the first solar thermal power plant of 50 kW capacity was installed by NES using the parabolic trough collector technology (line focusing) at Gwal Pahari, Gurgaon. It was commissioned in 1989 and operated till 1990, after which the plant was shut down due to lack of spare parts.51 Efforts are under way to revive this plant. A solar thermal power plant of 140 MW at Mathania in Rajasthan has been proposed and sanctioned by the government. In addition, a commercial power plant based on solar chimney technology was also studied in the north-western part of Rajasthan. The project was to be implemented in five stages, starting with 1.75 MW in the first stage, which would be enhanced to 35 MW, 70 MW, 126.3 MW, and 200 MW in subsequent stages. The height of the solar chimney, which would initially be 300 m, was planned to be gradually increased to 1000 m. The cost of electricity through this plant was expected to be `2.25/kWh. However, due to security and other reasons, the project was dropped. BHEL built a solar dish-based power plant in the 1990s as part of a research and development programme of the then Ministry of Non-conventional Energy Sources. The project was partly funded by the US government. Six dishes were used in this plant.

Growth of Solar Photovoltaic Although the solar photovoltaic programme began in the mid-1970s in India, the momentum could not be maintained for a long period. During 1997/98, it was estimated that about 8.2 MW capacity solar cells were produced in the country basically due to the liberal financing by the Indian Renewable Energy Development Agency (IREDA), a PSU unit established in 1987. The total installed manufacturing capacity was estimated to be 19 MW per year. Installation of solar photovoltaic water pumping systems for irrigation and drinking water applications has been undertaken through subsidies since 1993/94. As shown in Table 21 as on 30 September 2006, 7068 solar photovoltaic water pumping systems have been installed.

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Table 21 Year

Solar photovoltaic pumps installations in India Total cumulative pumps installed

2001/02

4 208

2002/03

5 113

2003/04

6 414

2004/05

6 780

2005/06

7 002

2006/07

7 046

2007/08

7 068

A total of 32 grid-interactive solar photovoltaic power plants have been installed in the country with financial assistance from the central government. These plants, with an aggregate capacity of 2.1 MW, are estimated to generate about 2.52 MUs of electricity in a year.52 In 1995, an aggregate area of 0.4 million m2 of solar collectors were installed in the country for thermal applications such as water heating, drying, and cooking. The thermal energy generated from these devices was assessed at over 250 million kWh per year. In addition, solar photovoltaic systems with an aggregate capacity of 12 MW were installed for applications such as lighting, water pumping, and communications. These systems are capable of generating 18 million kWh of electricity per year. In 2003 alone, India added 2.5 MW of solar photovoltaics. For rural electrification as well as employment and income generation, about 16 530 solar photovoltaic lighting systems were installed during 2004/05. Over 150 000 m2 of collector area has been installed in the country for solar water heating in domestic, industrial, and commercial sectors, making the cumulative installed collector area over 1 million m2. But still, government-funded solar energy in India only accounted for about 6.4 MW-years of power as of 2005. By early 2006, India’s Integrated Rural Energy Programme had served 300 districts and 2200 villages.53 More than 250 remote villages in seven states were electrified under the programme during 2005, with additional projects under implementation in over 800 villages and 700 hamlets in 13 states and federal territories (Table 22). Rural applications of solar photovoltaics had increased to 340 000 home-

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Table 22 Number of remote villages selected for solar electrification under India’s Integrated Rural Energy Programme State Andhra Pradesh

Number 168

Assam

33

Gujarat

38

Haryana

45

Jammu and Kashmir

50

Jharkhand

341

Karnataka

20

Madhya Pradesh

50

Maharashtra

174

Manipur

40

Mizoram

20

Rajasthan

230

Tamil Nadu

152

Tripura

518

Uttarakhand

164

Uttar Pradesh

97

West Bengal

265

Total

2 405

lighting systems, 540 000 solar lanterns, and 600 000 solar cookers in use. By 2006, over 2400 off-grid villages in India had received solar thermal and photovoltaic systems. The growth of solar cooker, solar home and street lighting, and solar lantern systems is steady as shown in Tables 22 and 23 and Figures 12, 13, and 14.

Jawaharlal Nehru National Solar Mission The Jawaharlal Nehru National Solar Mission (JNNSM) is a major initiative of the Government of India and the state governments to promote ecologically sustainable growth while addressing India’s energy security challenges. It will also constitute a major contribution by India to the global effort to meet the challenges of climate change. The objective of the JNNSM under the brand “Solar India” is to establish India as a global leader in solar energy, by creating

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Energy Security and Economic Development in India Number of solar cookers installed 640 000 620000 600000 580000 560 000 540000 520000 500000

/0

9

08

08 20

20

06 20

05 20

07 /

/0 7

6 /0

5 /0 04 20

20

03

/0

4

480000

Year

Figure 12 Cumulative growth of solar cookers Source TERI (The Energy and Resources Institute). 2008. Solar Energy Info-Kit 2008. New Delhi: TERI. Details available at Cumulative number 400 000 350 000 300 000 250 000 200 000 150 000 100 000 50 000

08 07 / 20

/0 7 06

6 20

05

/0

5 /0 04 20

/0 03 20

20

4

3 /0 02 20

20

01 /

02

0

Year

Figure 13 Cumulative growth of solar home-lighting systems Source TERI (The Energy and Resources Institute). 2008. Solar Energy Info-Kit 2008. New Delhi: TERI. Details available at

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Cumulative number 80 000 70 000 60 000 50 000 40 000 30 000 20 000 10 000

08 07 / 20

/0 7 06

6 20

/0

5

05 20

04 20

/0 03 20

/0

4

3 /0 02 20

20

01 /

02

0

Year

Figure 14 Cumulative growth of solar street-lighting systems Source TERI (The Energy and Resources Institute). 2008. Solar Energy Info-Kit 2008. New Delhi: TERI. Details available at

Table 23 Year

Cumulative growth of solar lantern systems Total cumulative lighting systems installed

2005/06

538 718

2006/07

463 058

2007/08

585 001

Source  TERI (The Energy and Resources Institute). 2008. Solar Energy Info-Kit 2008. New Delhi: TERI. Details available at

policy conditions for its diffusion across the country as quickly as possible.54 The mission has set a target of 20 000 MW and stipulates implementation and achievement of the target in three phases (Table 24). The first phase (2010–13) will achieve 1000 MW; the second phase (2013–17) will achieve 6000–7000 MW; and the third phase (2017–22) aims at reaching 20 000 MW. It is also targeted to deploy 20 million m2 of solar thermal collector area. The first phase, highly driven by the government with grants and subsidies, has a strategic importance in achieving the mission objectives as it forms the base of the strategic framework for the growth of solar industry in India. This phase involves the identification of potential zones for deployment of grid-connected solar power, rooftop solar power, rural electrification and solar thermal applications. To facilitate grid-connected solar power generation in this phase, a mechanism

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of “bundling” relatively expensive solar power with power from the unallocated quota of the Government of India (Ministry of Power) generated at NTPC coal based stations, which is relatively cheaper, has been proposed by the mission. This “bundled power” would be sold to distribution utilities at prices determined by the Central Electricity Regulatory Commission (CERC). The second phase aims at commercializing upcoming technologies like concentrated solar power, dish-type solar power, and thin film technology and promoting rural electrification programmes and solar lighting and heating systems without the support of subsidies. The third phase is mainly focused on achieving grid parity with minimal or no subsidy. It is also targeted to deploy 20 million solar lighting systems for rural areas by 2022. The mission also provides for NTPC’s Vidyut Vyapar Nigam Ltd (NVVN) to be the designated nodal agency for procuring solar power by entering into a power purchase agreement (PPA) with developers who set up solar projects during the next three years, that is, before March 2013.55 For each MW of installed capacity of solar power for which a PPA is signed by the NVVN, the Ministry of Power shall allocate to NVVN an equivalent amount of MW capacity from the unallocated quota of NTPC coal-based stations, and the NVVN will supply this “bundled” power to the distribution utilities. The mission has also set up guidelines for connecting solar power projects that are already at an advanced stage of development under the JNNSM. One of the important objectives of the JNNSM is to promote domestic manufacturing. In view of this, developers are expected to procure their project components from domestic manufacturers, as far as possible. However, in case of solar photovoltaic projects to be selected in the first batch, during FY 2010/11, it will only be mandatory for projects based on crystalline silicon technology to use Table 24 Targets of the solar mission Application segment

Target for phase 1 Target for phase 2 (2010–13) (2013–17)

Target for phase 3 (2017–22)

Solar collectors

7 million m2

15 million m2

20 million m2

Off-grid solar applications

200 MW

1000 MW

2000 MW

Utility grid power, including rooftop

1000–2000 MW

4000–10000 MW

20000 MW

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modules manufactured in India. For solar photovoltaic projects to be selected in the second batch, during FY 2011/12, it will be mandatory for all projects to use cells and modules manufactured in India. Integrated Solar Hybrid Pilot Project Pilot demonstration projects for grid-connected solar power, closely aligned with R&D priorities have also been envisaged under the JNNSM with a view to address issues related to optimization, variability of solar resource and storage constraints, and targeting space intensity through the use of better technologies. Setting up demonstration projects using technologies not covered under commercial projects is one of the windows envisaged to achieve the basic aim of the mission to make solar power cost effective and achieve parity with grid power by 2022. Accordingly, it is planned to have advanced technology configurations which could lead to cost reduction through higher efficiency, capacity utilization factor (CUF), and scale effect. These demonstration grid-connected solar power projects are set up to enable solar project developers to plan projects in the next phase of JNNSM, based on the experiences from these projects. The JNNSM envisages setting up utility-scale solar power generation plants through the promotion and establishment of solar parks with dedicated infrastructure by state governments. Accordingly, the following solar parks are being set up in Gujarat, Rajasthan, and Maharashtra. Rajasthan Solar Park The Government of Rajasthan has identified the Bhadla Solar Park situated on more than 10 000 hectares of land near Jaisalmer, Rajasthan. The solar park will accommodate both solar photovoltaic power plants (Phase I) and CSP plants. The master plan is being developed with the support of the Asian Development Bank to ascertain the feasibility of this location and also to prepare a detailed project report, including laying out of plots, infrastructure development plans, and financing schemes. The Rajasthan Rajya Vidyut Prasaran Nigam Ltd (RVPN), set up in 2000, has been declared as a state transmission utility of Rajasthan. The RVPN is responsible for the planning, development, operation and maintenance of transmission facilities at 132 kV and above in Rajasthan. It has developed a detailed project report to evacuate nearly 4000 MW of solar and wind energy from a high renewable energy potential zone

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identified in western Rajasthan. The RVPN expects nearly 1700 MW of solar power and 2300 MW of wind power to be connected to its bulk power transmission system in the western part of Rajasthan. While some of the power is to be consumed in the state by the distribution companies, a large part of this power would be transmitted to other states to cater to their renewable power procurement obligations. Gujarat Solar Park The Government of Gujarat launched its Solar Power Policy in 2009 and proposes to establish a number of largescale solar parks, the first of which would host 500 MW of generating capacity. The development of solar parks will streamline the project development timeline by letting government agencies undertake land acquisition and necessary permits and provide dedicated common infrastructure for setting up solar power generation plants largely in the private sector. This approach will facilitate the accelerated installation of solar power generation capacity at scale, which will in turn facilitate reduction in installed system costs. Common infrastructure for the solar park includes site preparation and levelling, power evacuation, water supply, access roads, security, and services. In parallel with the JNNSM, the Gujarat Electricity Regulatory Commission (GERC) announced feed-in tariff to mainstream solar power generation, which will be applied for solar power generation plants in the solar park. The development of this infrastructure to evacuate and transmit such a large quantum of renewable energy power of nearly 1000 MW is the first of its kind. Maharashtra Solar Park Metropolitan Region Development Authority (MMRDA) The Government of Maharashtra is aiming to set up a solar park on a 117 hectare plot at Taloja, Maharashtra. In this region, the sun yield is excellent for 5 h a day and for more than 200 days per year, which is an ideal requirement for such projects. One megawatt power can be tapped from 2.5 to 3 hectares of land. In summary, it is evident that there are several sources of energy that are playing an important role in the present scenario. Several initiatives, either at government level or in the private sector, have been taken under process to tap the new resources and enhance the utility of the existing resource base. As part of this endeavour, several schemes and projects have been developed. However, various studies reveal that there are several drawbacks, bottlenecks in the implementation. Consequently, several such schemes are redundant.

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Unless these issues are addressed, the efforts to enhance India’s energy security will be severely dented.

NOTES 1. Petroview, July 2007, quarterly journal of the Directorate General of Hydrocarbons 2. From author’s interaction with officers of the Planning Commission of India 3. From author’s interaction with officers of the Planning Commission of India 4. PSI Media Inc. 2010. India Energy Book 2011. Las Vegas: PSI Media Inc. Details available at 5. IBM (Indian Bureau of Mines). 2009. Coal and lignite. In Indian Minerals Year Book 2008. Nagpur: IBM 6. CCO (Coal Controller’s Organization). 2010. Provisional Coal Statistics 2009/10. Kolkata: CCO. Details available at 7. IBM (Indian Bureau of Mines). 2009. Coal and lignite. In Indian Minerals Year Book 2008. Nagpur: IBM 8. IBM (Indian Bureau of Mines). 2009. Coal and lignite. In Indian Minerals Year Book 2008. Nagpur: IBM 9. ICLEI South Asia. 2007. Renewable Energy and Energy Efficiency Status in India: report compiled by ICLEI South Asia. Noida: ICLEI South Asia 10. MoF (Ministry of Finance). 2011. Energy, infrastructure, and communications. In Economic Survey 2010/11. New Delhi: MoF. Details available at 11. MoF (Ministry of Finance). 2011. Energy, infrastructure, and communications. In Economic Survey 2010/11. New Delhi: MoF. Details available at 12. MoPNG (Ministry of Petroleum and Natural Gas). 2006. Report of the Working Group on Petroleum and Natural Gas Sector for the XIIth Plan (2012–17). New Delhi: MoPNG 13. MoF (Ministry of Finance). 2010. Energy, infrastructure, and communications. In Economic Survey 2009/10. New Delhi: MoF. Details available at 14. MoPNG (Ministry of Petroleum and Natural Gas). 2006. Report of the Working Group on Petroleum and Natural Gas Sector for the XIIth Plan (2012–17). New Delhi: MoPNG 15. Ebinger, Charles K. 2011. Energy and Security in South Asia: cooperation or conflict? Washington, DC: Brookings Institution Press. 224 pp. 16. Bose, P. R. 2007. ONGC strikes gas in Mahanadi for the second time. The Hindu Business Line 22 May 2007. Details available at

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17. MoPNG (Ministry of Petroleum and Natural Gas). 2008. Annual Report 2007/08. New Delhi: MoPNG. Details available at 18. MoF (Ministry of Finance). 2011. Energy, infrastructure, and communications. In Economic Survey 2010/11. New Delhi: MoF. Details available at 19. EIA (Energy Information Administration). 2011. Country analysis brief: India. Details available at 20. EIA (Energy Information Administration). 2011. World shale gas resources: an initial assessment of 14 regions outside the United States. Details available at 21. EIA (Energy Information Administration). 2011. International shale gas report. Details available at 22. Speech by Union Minister of Power, Shri Sushil Kumar Shinde in the India-US Energy Summit in Chicago, September 2011. 23. Speech by Union Minister of Power, Shri Sushil Kumar Shinde in the India-US Energy Summit in Chicago, September 2011. 24. MoP (Ministry of Power). 2006. Rural Electrification Programme. In Annual Report 2005/06. New Delhi: MoP. Details available at 25. Planning Commission. 2011. Energy. In Mid-Term Appraisal: Eleventh Five Year Plan 2007–12. New Delhi: Oxford University Press. Details available at 26. Jain, S. K. 2010. Nuclear Power: an alternative. Details available at , last accessed on 30 May 2011. 27. Jain, S. K. 2010. Nuclear Power: an alternative. Details available at , last accessed on 30 May 2011. 28. Jain, S. K. 2010. Nuclear Power: an alternative. Details available at , last accessed on 30 May 2011. 29. INSA (Indian National Science Academy). 2011. Atomic Energy in India. In Pursuit and Promotion of Science: the Indian Experience. Details available at , last accessed on 30 May 2011 30. Gupta, R. 2010. India’s atomic mineral resources: prospects, challenges, and future directions for sustainable development. Keynote lecture presented at the 3rd Asian Mining Congress, Kolkata, India, 22–28 January 2010, organized by Mining, Geological, and Metallurgical Institute of India (MGMI) and TAFCON (supported by the Government of India), held in association with Coal India Limited.

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31. Windham, C. 2006. Thorium: fuelling a sustainable future for nuclear power. In Nuclear Energy Review 2006. Details available at 32. Prime Minister’s statement on 13 August 2007 in the Lok Sabha on civil nuclear energy cooperation with the USA. Details available at 33. Wind Energy Outlook 2001. Details available at 34. Wind Energy Outlook 2001. Details available at 35. Wind Energy Outlook 2001. Details available at 36. Shukla, P. R. 1997. Biomass Energy in India: transition from tradition to modern. The Social Engineer 6(2). Details available at 37. IEA (International Energy Agency). 2007. World Energy Outlook 2007: China and India insights. Paris: IEA. Details available at 38. TERI (The Energy and Resources Institute). 2010. Biomass energy in India. New Delhi: TERI [A background paper prepared for the International Institute for Environment and Development (IIED) for an international ESPA workshop on biomass energy, 19–21 October 2010, Parliament House Hotel, Edinburgh] 39. MNRE (Ministry of New and Renewable Energy). 2009. Bioenergy India. September 2009 (1). Details available at 40. Ravindranath, D., and S. S. N., Rao. 2011. Bioenergy in India: barriers and policy options. Details available at , last accessed on 30 May 2011. 41. Ravindranath, D., and S. S. N., Rao. 2011. Bioenergy in India: barriers and policy options. Details available at , last accessed on 30 May 2011. 42. Planning Commission. 2003. Report of the Committee on Development of Biofuel. Details available at 43. Planning Commission. 2003. Report of the Committee on Development of Biofuel. Details available at 44. DIE (German Development Institute). 2009. Biodiesel in India: value chain organization and policy options for rural development. Details available at

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45. MNRE (Ministry of New and Renewable Energy). 2009. National Policy on Biofuels. Details available at 46. MNRE (Ministry of New and Renewable Energy). 2011. Report of the Subgroup on Biofuels for Transportation Programme for Twelfth Plan. Details available at 47. MNRE (Ministry of New and Renewable Energy). 2011. Report of the Subgroup on Biofuels for Transportation Programme for Twelfth Plan. Details available at 48. Speech by Prime Minister of India, Dr Manmohan Singh at the launching of India’s National Action Plan on Climate Change on 30 June 2008. 49. TERI (The Energy and Resources Institute). 2008. Solar Energy Info-Kit 2008. New Delhi: TERI. Details available at 50. TERI (The Energy and Resources Institute). 2008. Solar Energy Info-Kit 2008. New Delhi: TERI. Details available at 51. Garud, S., and I., Purohit. 2009. Making solar thermal power generation in India a reality: overview of technologies, opportunities, and challenges. Details available at 52. Garud, S., and I., Purohit. 2009. Making solar thermal power generation in India a reality: overview of technologies, opportunities, and challenges. Details available at 53. Garud, S., and I., Purohit. 2009. Making solar thermal power generation in India a reality: overview of technologies, opportunities, and challenges. Details available at 54. Jawaharlal Nehru National Solar Mission: towards building solar India. Details available at 55. MNRE (Ministry of New and Renewable Energy). 2009. Jawaharlal Nehru National Solar Mission: building solar India. Details available at

3 Trends in India’s Energy Sector: Elasticity and Growth India is one of the fastest-growing countries in Asia. Energy consumption is among the key inputs in attaining such growth. While India’s economic growth experience is admired the world over, the growth in energy consumption led to import dependence and energy insecurity. India should aim at sustaining its economic growth through enhanced energy security while simultaneously mitigating adverse environmental impact through proper energy mix and improved energy efficiency. However, to estimate the appropriate energy mix required, it is imperative to know the trends in India’s energy consumption till date. The study of these trends through econometric models aims at discovering whether India is energy secure. An attempt has also been made to study the growth trends in energy consumption, production, and efficiency by computing energy elasticity using time-series data. Energy elasticity is the percentage change in energy consumption to achieve 1% change in national gross domestic product (GDP). This obviously measures energy productivity, which is, therefore, considered energy efficiency. Energy efficiency can also be measured using energy intensity (measured as the ratio of energy consumption to GDP) as an indicator. This may be shown as follows. Energy elasticity = (DY/DE) × (E/Y) where DY is the change in GDP; DE is the consumption; E is the energy consumption; and The data for 1980/81–2009/10 was collected Commission and used to measure the trends

change in energy Y is the GDP. from the Planning in energy security

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using two broad measures.1 The trends in growth and elasticity of various sources of energy consumption have been computed dividing the study period (1980/81–2009/10) into three sub-periods: 1980/81– 1990/91, 1991/92–2000/01, and 2001/02–2009/10. The sub-periods were chosen on the basis of a trend-break analysis.2 Therefore, a structural shift analysis using the dummy-variable method has been employed to verify the changes in trends. Finally, based on these trends and energy elasticity, the energy consumption growth rate required to sustain the 10% economic growth for the coming years has been projected. Projections are also made for energy consumption by source using its present growth rate.

DUMMY-VARIABLE APPROACH A dummy variable3 is a qualitative variable that can only take two values: 0 and 1. It is called a dummy variable because it represents information from a categorical variable. This approach is useful in capturing the differences in trends during different time periods. The study period is divided into three sub-periods, as mentioned, on a time-break analysis. As there is a break in the trends of several energy sources during 1990/91, it was initially espoused as the break year. However, to have uniform sub-periods, 2001/02 was considered another break in the study period. Most of the variables, in terms of consumption, production, and imports, have behaved as expected. Therefore, the structural-shift analysis based on dummy variables seems appropriate to study the trend changes in variables such as growth and elasticity in the Indian energy sector. It is not only useful in measuring such concepts but also imperative in verifying whether they show an upward or downward trend, to bring in policy initiatives. Preliminary regressions of energy sub-components revealed that the sub-periods based on 1990/91 and 2000/01 provided high t values (meaning that the change in trends is statistically significant). Hence, this periodization was applied to the total energy as well as to the different energy sources. According to the dummy-variable approach, the following equation has been used to explain the trends and shifts during the study period.4

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ln Y = a + bt + (a1 – a) D1 + (a2 – a1)D2 + (b1 – b)D1t + (b2 – b1)D2t where ln Y is the natural logarithm of Y, say energy consumption; D1 = 0 for 1980/81–1990/91 and D1 = 1 for the remaining period; D2 = 0 for 1990/91–2000/01 and D2 = 1 for the remaining period; a and b are intercept and slope parameters for 1980/81–1990/91; and a1 and b1 are the parameters for 1991/92–2000/01; a2 and b2 are those for 2001/02–2009/10. (a1 – a) is the differential intercept for the second sub-period; (a2 – a1) is the differential intercept for the third subperiod; (b1 – b) is the differential slope coefficient for the second sub-period; (b2 – b1) is the differential slope coefficient for the third sub-period; a is the intercept for the first period; and b is the slope coefficient for the first period. Therefore, the coefficient of time measures the growth rate or elasticity of energy consumption for the first sub-period. The coefficient of D1t measures the change in the variable; an increase indicates a positive change, while a decrease means a negative one. Similarly, the coefficient of D2t measures the change in the variables. If it is positive, there is an increase and if it is negative, there is a downswing in variable. However, the increase or decrease in the variables must be elucidated after taking the statistical significance of these coefficients into account. Using this method, the trends in energy security, commercial energy consumption, total energy consumption, total energy production, energy imports, elasticity, and the overall efficiency of energy as well as the individual efficiencies of some of the important energy resources have been calculated.

TRENDS IN ENERGY CONSUMPTION OF MAJOR SOURCES OF ENERGY Energy insecurity is directly connected to energy consumption. As energy consumption increases, the potential for energy insecurity increases. Therefore, the trends in the consumption of major sources of energy in India have also been studied in this chapter, using the same method. The model used is as follows. ln Yt = b0 + a1D1 + a2 D2 + b1t + b2 D1t + b3D2t + error where ln Yt is the natural log of a variable; and t is time. Other coefficients have the same meaning as explained in the previous section. The growth rates of energy consumption for various sources are presented in Table 1.

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Table 1

Growth rates in energy consumption

Energy source Coal

1980/81–1990/91 (%) 1991/92–2000/01 (%) 2001/02–2009/10 (%) 3.33

3.01

6.03

17.87

5.18

3.06

Crude oil

9.88

7.02

3.45

Petroleum

7.69

1.71

0.67

Natural gas

20.76

7.13

5.99

Lignite

Hydropower

−4.68

1.00

9.00

Nuclear power

19.15

12.57

2.59

Wind power

−5.3

14.28

19.58

Note Computed by author using the dummy-variable model; detailed calculations are given in Annexure VI

The above trends indicate that the growth rate of coal which had been steady in the first two sub-periods doubled in the third sub-period while the consumption of lignite had been consistently declining. These trends are reflective of the increased dependence on coal and the substitution of lignite with other forms of energy sources. The crude oil consumption in India grew by 9.88% (Table 1) during the first sub-period 1980/81–1990/91, but this slowed down slightly during the second sub-period to 7.02%. Similarly, in the third subperiod, oil consumption declined further by 3.45%. Analogously, the petroleum consumption increased by 7.69% during the first sub-period and declined to 1.71% during the second sub-period. The growth in petroleum consumption further dwindled to 0.67% during the third sub-period. Similarly, the growth rate in the crude oil consumption had sharply fallen in the third sub-period compared to the second sub-period. Analogously, the petroleum consumption which was at 7.69% had steeply fallen. Both oil and petroleum energy consumption growth showed similar trends, reflecting the situation in international oil price rise and volatility as well as the introduction of other forms of energy, particularly non-renewable energy sources. The growth in the consumption of natural gas has shown a decline over all three sub-periods, although it is still one of the fastestgrowing energy consumption components in India. These trends perhaps also indicate the diversification of energy resources. From the growth trends of three major sources—hydropower, nuclear power, and wind power—it is observed that hydropower which grew at a negative growth rate during the first sub-period

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was reversed during the second sub-period leading to a substantial increase in the third sub-period. Thus the energy consumption of hydropower increased astoundingly during 2000/01–2009/10. The growth trends of nuclear power consumption show a different picture. Nuclear power consumption grew by 19.15% during the first subperiod has substantially decreased in the third sub-period. Similarly, wind power grew at a negative growth rate of 5.3% during the first sub-period registered a steep growth in the second and third subperiods, which clearly shows an increasing trend of wind energy as a source of power. The growth trends in the power sector reveal the growing importance of hydropower and wind power in the Indian energy sector.

TRENDS IN TOTAL ENERGY CONSUMPTION, PRODUCTION, AND IMPORTS The total energy consumption in India doubled in the second subperiod from the first sub-period but had a steep fall in the third sub period. Incongruous to this, commercial energy had registered continuous growth. This reflects the declining trend in the usage of non-commercial energy (Table 2).

TOTAL ENERGY PRODUCTION IN INDIA The total energy production in India grew steeply in the second subperiod but registered steep fall in the third sub-period. Therefore, in the most recent period, energy consumption has grown 4.5% and production has grown 3.72%, leading to a widening gap between production and consumption. This led to an increase in energy imports during this period.5 Table 2 Trends in energy consumption, production, and imports 1980/81–1990/91

1991/92–2000/01

2001/02–2009/10

Energy consumption

3.9

8.14

4.5

Energy production

4.82

7.51

3.72

−12.73

11.84

7.19

Commercial energy

4.06

5.08

5.86

Total energy

3.9

8.14

5.6

Energy imports

Note Computed by author using the dummy-variable model; detailed calculations are available in Annexure VI

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ENERGY IMPORTS IN INDIA As the energy during during

gap between energy production and consumption widened, imports rose. Although expanded at a negative growth rate the first sub-period, imports registered increased growth rate the second and third sub-periods.

TRENDS IN ENERGY SECURITY Energy security (commercial energy) has been measured using two indicators6 of energy dependence—energy in terms of imports (ESIM), measured as a ratio of energy imports to energy consumption multiplied by 100, and security in terms of production (ESIP), measured as a ratio of energy production to energy consumption multiplied by 100. The increase in ESIP and the decline in ESIM indicate a decline in energy independence and, therefore, an increase in energy security. These ratios have been computed and a structural shift analysis used to verify the changes in energy security over the study period. The model used is as follows. Yt = b0 + a1D1 + a2 D2 + b1t + b2 D1t + b3D2t + error where Yt is a measure of energy security; D1 = 0 for 1980/81 to 1990/91 and D1 = 1 for the rest of the period; D2 = 0 for 1991/92 to 2000/01 and D2 = 1 for the remaining period; and t indicates time. There is an increasing energy import dependence in India (Table 3) that manifests as energy insecurity, which increased in the second sub-period and rose further during the third. While looking at energy security in terms of energy production, the structural shift analysis supports this result. Therefore, there is an evidence of energy insecurity in India, which seems to have started after 1990/91. Table 3 Trends in energy security in India (1980/81–2009/10) 1980/81–1990/91 ESIM ESIP

−1.0 2.0

1991/92–2000/01 0.0 −1.0

2001/02–2009/10 1.0 −2.0

Note Computed by author using the dummy-variable method; details are available in Annexure II.

Trends in India’s Energy Sector: Elasticity and Growth

99

TRENDS IN ENERGY ELASTICITY AND EFFICIENCY IN INDIA The trends in the mentioned elasticity are presented next. They are measured as the percentage change of GDP produced for a given 1% change in energy consumption. Obviously, an increase in this ratio indicates an increase in energy productivity, that is, energy efficiency. Thus, energy elasticity or intensity is used to measure energy efficiency. LnYt = b0 + D1 + D2 + b1LnECt + b2 D1LnECt + b3D2 LECt + error where LnYt is the natural log of GDP and LnEC is the natural log of the energy component. The remaining coefficients have the same meaning as explained earlier. Table 4 indicates energy elasticity (DY/∆E) × (E/Y). The ratios indicate an increase in efficiency in India during the study period. For instance, the elasticity of total energy consumption was negative during the first sub-period, but increased in the second and third periods. Similarly, the elasticity of commercial energy had been on rise Thus, the commercial energy in India has been efficient in all subperiods of the study period. Energy intensity also presents a similar trend. The non-commercial energy in India shows a heightened efficiency for the first two sub-periods, although there was a marginal decline during the third sub-period. Energy intensity also presents a similar trend.

ENERGY ELASTICITIES OF DIFFERENT SOURCES OF ENERGY In this section, the energy elasticities for various sources of energy are studied to verify whether the energy efficiency among these sources increased during the mentioned sub-periods. From the Table 4, it is evident that coal has been efficient during the study period, although the efficiency declined during the third sub-period. The elasticity of lignite was negative during the first sub-period but it increased subsequently in the second and third sub-periods. It is evident that lignite was efficient during all the subperiods and its efficiency increased constantly.

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Table 4

Energy elasticity and efficiency in India 1980/81–1990/91 1991/92–2000/01

Total energy

2001/02–2009/10

−1.31

0.68

1.79

Commercial energy

0.26

1.15

1.47

Non-commercial energy

1.16

5.17

3.96

Coal

1.04

1.61

1.38

Lignite

−0.57

0.93

1.76

Oil

−0.49

3.66

4.26

Petroleum

−0.55

1.18

2.28

Natural gas

0.26

0.79

0.84

Hydropower

1.31

1.12

0.79

1.02

0.43

−0.21

0.39

0.30

Nuclear power Wind power

—

Notes  1. Data are not available for the first sub-period for wind power. 2. Computed by author using the dummy-variable method; detailed calculations are given in Annexure VI.

Since the elasticity of natural gas had been gradually increasing, it can be concluded that the energy usage of natural gas was efficient during the entire study period as well as in all the sub-periods. Similarly, oil energy in India shows a rise in elasticity during the second and third sub-periods. Petroleum energy in India also shows an escalation in efficiency during the second and third subperiods. This may be due to several energy efficiency measures, either enforced or practised. However, the elasticity of hydropower declined in efficiency during the second and third sub-periods. The elasticity of nuclear power also declined in both the second and third sub-periods by 0.43 and −0.21, respectively. The elasticity of wind power during the first sub-period has not been computed due to the non-availability of data. Therefore, the model has been adjusted to compute elasticities for the remaining two sub-periods. The increase in elasticity of wind power indicates an increase in efficiency. From these readings, it is clear that energy efficiency in India is rising, except a few energy sources such as coal and nuclear power.

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101

ENERGY ELASTICITY, ENERGY GROWTH, AND ECONOMIC GROWTH An endeavour has been made in this section to project the required energy consumption for a 10% economic growth. This 10% economic growth rate is taken as reference for convenience to simplify calculation mechanism in developing the relationship between energy growth and economic growth. The projection is based on the assumption that the energy elasticities remain stable and that the projected economic growth is 10%. A constant elasticity functional form7 (double log functional form) has been used, taking energy consumption as the dependent variable and the GDP as the independent variable. The projections of energy growth are made using the following expression which are depicted in Table 5. Table 5 Energy elasticity, economic growth, and energy growth in India Energy elasticity 1980/81 1991/92 2001/02 –1990/91 –2000/01 –2009/10

GDP growth* Energy consumption growth

Total energy consumption

0.09

1.47

0.56

10%

0.56 × 10% = 5.6%

Commercial energy

0.87

0.87

0.68

10%

0.68 × 10% = 6.8%

Noncommercial energy

0.86

0.19

0.25

10%

0.25 × 10% = 2.5

Coal

0.96

0.62

0.72

10%

0.72 × 10% = 7.2

 —

1.07

0.57

10%

0.57 × 10% = 5.7

5.0

1.26

1.19

10%

1.19 × 10% = 11.9%

Oil

—

0.27

0.23

10%

0.23 × 10% = 2.3%

Petroleum

—

0.85

0.44

10%

0.44 × 10% = 4.4%

Hydropower

0.76

0.89

1.26

10%

1.26 × 10% = 12.6%

Nuclear power

0.98

2.32

—

10%

2.32 × 10% = 23.2%

—

25.64

3.33

10%

3.33 × 10% = 33.3%

Lignite Natural gas

Wind power

* Energy demand is projected based on 10% GDP growth and the energy consumption growth for 2001/02–2009/10.

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Energy Security and Economic Development in India

Energy growth = Economic growth × Energy elasticity DE/E = DY/Y/(DY/DE)* E/Y DE/E = DY/Y/(DY/DE* E/Y) Table 5 indicates that (1) an increasing efficiency in India’s energy sector that may be due to several factors such as demographic shifts from rural to urban areas, structural economic changes towards less energy-intensive industry, impressive growth of services, improvement in efficiency of energy use, and inter-fuel substitution 8 and; (2) a required energy growth of 5.6% to sustain a growth rate of 10% for India in the coming years.

NOTES 1. Energy security has been measured in terms of (1) imports and (2) production. There could be several other measures of energy security. These two measures were chosen in terms of energy dependence. If energy security in terms of imports increases and in terms of production declines, then there is an evidence of energy insecurity. 2. The data on energy consumption has been plotted for three sub-periods: 1980/81–1990/91, 1991/92–2000/01, and 2001/02–2009/10. It was found that there is a trend change during 1991/92. In order to have uniform subperiods, decadal data has been used in the form of sub-periods. 3. The dummy-variable method is useful in knowing the trends in variables using a single equation, as compared to the multi-step Chow procedure. It is also used to know whether there is any statistically significant change during sub-periods. This method is also known as structural shift analysis (Gujarathi, D. 2003. Basic Econometrics. New Delhi: McGraw-Hill). 4. The equation measures growth rates in the three sub-periods separately and indicates any statistically meaningful shift in the growth trend during these sub-periods. Depending on the values of the coefficients of the model, the growth rates and change in them have been measured. 5. The growth trends in energy production and consumption have been measured using the sub-period analysis and the dummy-variable method. 6. Energy security is measured using two ratios: (1) ESIM, which is the ratio of energy imports to energy consumption; and (2) ESIP, which is the ratio of energy production to energy consumption. 7. A double log functional form, also known as a constant elasticity functional form, has been used to measure the energy elasticity. This is a popular method of estimating elasticity, which is given by the coefficients of the functional form. 8. Planning Commission, Government of India. 2010. Midterm appraisal on energy.

4 Causality between India’s Energy Consumption and GDP India is a fast-growing economy that seeks to grow at 8%–10%. The sustainability of economic growth requires corresponding energy growth. It has been projected by the Planning Commission that the energy sector should grow at least by 6% to sustain 10% growth in India in the coming years. While there has been a broad consensus that energy is the software of economic development, the causal relationship and a precise economic link between energy consumption and economic growth at an individual country level has been scant or missing.1 This relationship has gained vital importance, as it is necessary to know it to frame relevant policies at the sectoral or aggregate levels. Causality studies on energy were mostly focused on aggregate energy consumption or on a single source of energy. Generally, such studies were done on oil, petroleum, and, at the most, electricity. Besides, the evidence presented by these studies is mixed and not conclusive.2 Moreover, the studies on the causal relationship using long period data of India are limited. Nonetheless, these studies have presented sometimes a unidirectional causal relationship between gross domestic product (GDP) and energy consumption and, others, a bidirectional causal relationship between them.3 In view of the importance of energy consumption in influencing economic growth, its sustainability, and the resultant environmental effects, an attempt has been made in this chapter to develop a more precise economic relationship between energy growth and economic growth. The purpose of such study is to trace whether energy

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growth influences economic growth or vice versa. If one parameter influences the other, it indicates a unidirectional causal relationship. In case both energy growth and economic growth influence each other, it implies a bidirectional causal relationship. An effort has been made to find answers to these questions. Besides, it was also analysed whether individual components of various energy sources are critically connected or not, and if so, whether components such as coal, gas, and petrol influence the growth of GDP and vice versa. If energy growth influences economic growth, and not vice versa, it is important to attain energy security to enhance and sustain economic growth. Contrarily, if economic growth influences energy consumption, energy conservation policies may be strengthened appropriately so that sustained economic growth is not hampered. Similarly, if there is bidirectional causality, a combination of these policies may be evolved. If there is no causation between growth and energy consumption and these are independent, policies have to be developed in such a way that these do not have implications for each other.4

GRANGER CAUSALITY TEST Based on the energy consumption data from 1980/81 to 2009/10,5 an empirical analysis has been done using established econometric models of co-integration and error correction methodology.6 Accordingly, GDP has been used as a proxy to delineate the country’s economic development. Initially, the causality models used the standard Granger and Sims methods to verify the causal relationships.7 The Granger causality test is a statistical hypothesis for determining whether a particular time series is useful in forecasting another. Clive Granger, the winner of the 2003 Nobel Prize for Economics, argued that a time series x will have causal relationship on y if it can be shown through a series of t tests and f tests on lagged values of x (and lagged values of y included). Granger is known for his work as an econometrician on the analysis of time-series data and the relationship between correlation and causality. However, the application of these two approaches is meaningful only when the data series are stationary. Since most of the macroeconomic time series are non-stationary, the germane methodology to study causality would be to test the co-integration between these variables. The co-integration approach is now considered the most appropriate method to investigate the causality between variables in time series. Accordingly, the causeand-effect relationship between energy consumption and GDP at the

Causality between India’s Energy Consumption and GDP

105

aggregate as well as sectoral levels has been verified based on long period data using a two-step procedure. The first step in causality investigation is to verify the existence of a unit root in the variables. A unit root test is meant to identify whether a time-series variable is non-stationary or not an autoregressive model, as many macroeconomic series are non-stationary. The unit root hypothesis in time-series data is a credible methodology for the interpretation of empirical evidence. To implement a more uncompromising test to verify the presence of a unit root in variables, the Philips–Perron test (PP test) has been employed.8 The PP test (1988) is an established unit root test that proposes an alternative nonparametric method for serial correlation when testing for a unit root among variables. The PP test is an extension of the non-augmented Dicky–Fuller test equation through the modification of the t ratio of α coefficient, so that serial correlation does not affect the distribution of the test statistic. The second step explores the causal relationship between the series. If the series is stationary, the standard Granger’s causality test should be employed. If the series is non-stationary and the linear combination is stationary, the error correction method (ECM) approach is adopted. For this reason, testing for co-integration is a necessary prerequisite to implementing the causality test. Accordingly, Johanson’s method for verifying the co-integration between natural logs of energy consumption and GDP has been used.9

VECTOR ERROR CORRECTION MODEL The present study utilizes Johansen’s maximum likelihood procedure for the co-integration test using maximum Eigen value and trace statistics. However, in the first step, the PP unit root test is used to verify the degree of integration. If the relevant presence of co-integration is confirmed by the Johansen test, the vector error correction (VEC) model can be used to show the direction of the causality relationship. According to Engle and Granger (1987), the VEC model is as follows. DYt = a21(1) DYt – 1 + a22(1) DXt – 1 + ly ECTt – 1 + e2t

…(1)

DXt = a11(1) DYt – 1 + a12(1) DXt – 1 + lx ECTt – 1 + e1t

…(2)

where Yt, Xt, and are real GDP, energy consumption, and error term, respectively.

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Energy Security and Economic Development in India

Also, D, (l), and ECT are difference operator, polynomials in the lag operator L, and the coefficient of the lagged error correction term, respectively. Similarly, l shows the deviation of the dependent variable from the long run equilibrium. The non-significance of explanatory variable coefficients (a11 and a22) is referred to as a short run non-causality. In this case, if no causality in either direction is found, “the neutrality hypothesis” will be supported. The results of the PP unit root test for levels and first difference are presented in Tables 1 and 2. All variables are non-stationary in levels (except petroleum) and stationary in first difference. Thus, they are integrated with order 1(1(1)). Table 1

Results of the Phillips–Perron unit root test

Variable

Level

First difference

LGDP

–0.30

–5.02*

LTotal energy

–5.39

–13.17*

LCOM energy

–3.05

–7.59*

LCOAL

–2.12

–4.58*

LNGAS

–2.67

–4.73*

LHP

–1.54

–4.42*

LNP

–2.88

–6.72

LOIL

–2.09

–2.87 #

LPET

–6.14a

–5.27*

* #

Significant at 1% Significant at 10%

Table 2 Johansen co-integration test results: trace test Series

Trace statistic

Maximum Eigen value

LGDP, LTotal Energy

27.00

30.56

LGDP, LCOM Energy

23.79

28.52

LGDP, LCOAL

18.33

20.43

LGDP, LNGAS

29.81

30.58

LGDP, LHP

30.94

30.59

LGDP, LNP

25.46

28.47

LGDP, LOIL

24.58

29.51

LGDP, LPET

39.79

40.61

Causality between India’s Energy Consumption and GDP

107

Table 2 shows the co-integration test results. According to Johansen’s co-integration test, the values of the calculated Eigen value and trace test statistics are greater than their decisive values, which denote the rejection of the hypothesis of non-co-integration as well as long-run neutrality hypothesis. This clearly shows that all energy components and the GDP are in long-run equilibrium. Therefore, it is concluded that there exists a long-run equilibrium relationship between these variables, which means they are all connected. The results of the VEC model estimation have been shown in Tables 3, 4, and 5 for the causality relationship between real GDP and each type of energy consumption. It can be seen that most of the error correction coefficients are not significant in GDP equations (except for hydroelectric energy consumption). In fact, these variables are weak exogenous in the long run and changes in these do not respond to deviation in the long-run equilibrium in period t – 1. Owing to the significance of error correction coefficients in energy consumption equations, a deviation in energy consumption is adjusted to equilibrium value in the long run. Ruminating over the lagged explanatory variables t-statistics, it can be seen that, in the short-run, there is unidirectional Granger causality running from energy consumption to real GDP. The results based on VEC models are presented in Table 3. The causality between GDP and total energy consumption has been presented for the study period 1980/81–2009/10 (Table 3). As most of the lagged variables of total energy consumption are statistically significant, it may be concluded that energy consumption causes GDP of India. This is not remarkable as energy consumption is one of the variables influencing the GDP from the demand side. Energy is one of the major sources of economic growth of a country along with labour, capital, and total factor productivity. In the case of India, the energy sector assumes a momentous gravity in view of the ever-increasing energy needs, which require huge investments to meet them. The results indicate that most of the lagged variables of commercial energy consumption are statistically significant. This shows a unidirectional causality between commercial energy and India’s GDP. Therefore, energy security, in terms of commercial energy consumption, is important to maintain sustained economic growth.

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Table 3

Vector error correction estimates: LGDP, LTOTAL ENERGY D(LGDP)

CointEq1

0.03

−0.54

(0.02)

(0.21)

[1.57]

[−2.61]

D(LGDP(-1))

0.01

5.10

(0.21)

(2.37)

[0.04]

[2.15]

0.13

6.54

(0.20)

(2.23)

D(LGDP(-2))

D(LTOTALENERGY(-1))

D(LTOTALENERGY(-2))

D(LTOTAL ENERGY)

[0.62]

[2.93]

−0.04

−0.65

(0.02)

(0.19)

[−2.18]

[−3.37]

−0.02

−0.09

(0.01)

(0.12)

[−1.72]

[−0.75]

0.06

−0.54

C

(0.02)

(0.20)

[3.07]

[−2.63]

R-squared

0.44

0.44

Adjusted R-squared

0.30

0.31

Sum square resides

0.01

0.73

S.E. equation

0.02

0.19

F-statistic

3.12

3.20

72.14

9.60

Akaike AIC

−5.09

−0.28

Schwarz SC

−4.80

0.01

Mean dependent

0.06

0.08

S.D. dependent

0.02

0.23

Log likelihood

Determinant resid covariance (dof adjustment) Determinant resid covariance

1.08E-05 6.37E-06

Log likelihood

81.74

Akaike information criterion

−5.21

Schwarz criterion

−4.53

Sample (adjusted): 1984/85–2008/09 Included observations: 26 (after adjustments) Standard errors in ( ) and t-statistics in [ ]

Causality between India’s Energy Consumption and GDP

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Table 4 Vector error correction estimates: LGDP, LCOMENERGY D(LGDP) CointEq1

D(LGDP(-1))

D(LGDP(-2))

D(LCOMENERGY(-1))

D(LCOMENERGY(-2))

C

D(LCOMENERGY)

0.01

−0.10

(0.01)

(0.04)

[1.37]

[−2.63]

−0.03

1.49

(0.20)

(0.92)

[−0.14]

[1.62]

0.13

2.11

(0.21)

(0.94)

[0.64]

[2.23]

−0.09

−0.14

(0.04)

(0.20)

[−2.03]

[−0.72]

−0.03

0.07

(0.03)

(0.14)

[−1.07]

[0.54]

0.06

−0.13

(0.02)

(0.09)

[3.52]

[−1.64]

R-squared

0.35

0.31

Adj. R-squared

0.19

0.13

Sum sq. resides

0.01

0.14

S.E. equation

0.02

0.08

F-statistic

2.15

1.76

Log likelihood

70.24

30.96

Akaike AIC

−4.94

−1.92

Schwarz SC

−4.65

−1.63

Mean dependent

0.06

0.07

S.D. dependent

0.02

Determinant resid covariance (dof adjustment) Determinant resid covariance Log likelihood

0.09 2.39E-06 1.42E-06 101.30

Akaike information criterion

−6.72

Schwarz criterion

−6.04

Sample (adjusted): 1984/85–2008/09 Included observations: 26 (after adjustments) Standard errors in ( ) and t-statistics in [ ]

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Table 5

Vector error correction estimates: LGDP, LCOAL D(LGDP)

CointEq1

D(LGDP(-1))

D(LGDP(-2))

D(LCOAL(-1))

D(LCOAL(-2))

C

R-squared

D(LCOAL)

−0.03

0.04

(0.02)

(0.03)

[−1.53]

[1.64]

0.09

0.75

(0.21)

(0.29)

[0.41]

[2.54]

0.05

−0.26

(0.23)

(0.32)

[0.21]

[−0.81]

0.09

0.20

(0.15)

(0.21)

[0.63]

[0.97]

0.09

−0.06

(0.13)

(0.18)

[0.69]

[−0.35]

0.04

0.01

(0.02)

(0.03)

[2.35]

[0.44]

0.19

0.29

Adjustment R-squared

−0.01

0.12

Sum squared resides

0.01

0.01

S.E. equation

0.02

0.03

F-statistic

0.93

1.67

Log likelihood

67.37

58.87

Akaike AIC

−4.72

−4.07

Schwarz SC

−4.43

−3.78

Mean dependent

0.06

0.05

S.D. dependent

0.02

0.03

Determinant resid covariance (dof adjustment) Determinant resid covariance Log likelihood

3.47E-07 2.06E-07 126.39

Akaike information criterion

−8.65

Schwarz criterion

−7.97

Sample (adjusted): 1984/85–2008/09 Included observations: 26 (after adjustments) Standard errors in ( ) and t-statistics in [ ]

Causality between India’s Energy Consumption and GDP

111

As all the lagged variables of coal energy consumption are statistically not vital, it may be concluded that there is no evidence of coal energy causing India’s GDP. However, there is some evidence for GDP influencing coal consumption. Therefore, a rise in economic growth of India increases the energy consumption of coal. Energy efficiency of coal may be increased by reducing the pollution impact of coal. The causality between energy consumption and GDP has also been studied using other sources of energy. As most of the lagged variables are statistically insignificant, it is concluded that they are independent of each other. The results for these sources of energy are as follows. As most of the lagged variables of natural gas energy consumption and GDP are statistically insignificant, it may be concluded that natural gas consumption and GDP are independent in India. Either way, there is no causation between these variables. Similarly, the lagged variables of hydropower consumption and GDP and those of oil energy consumption and GDP are statistically insignificant. Surprisingly, the lagged variables of petroleum consumption and GDP are also statistically insignificant. These results are different from some of the earlier studies, as the data set and methodology used are different. More studies are needed on causality at the individual sectoral level to arrive at a consensus. This analysis is based on well-established econometric models to testify the following conclusions. In the short run, there is a unidirectional Granger causality running from energy consumption to GDP. The results also indicate that there exists a unidirectional causality between commercial energy and the GDP of India. According to Johansen’s co-integration test, all the energy components and GDP are, in the long run, in equilibrium, that is, they are critically connected. In sum, these studies indicate that there is a unidirectional causality from energy consumption to GDP; the various energy components and the GDP are critically connected in the long run. As energy consumption influences energy growth, it is important to attain energy security to maintain sustained economic growth for the wellbeing and prosperity of the country.

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NOTES 1. Kraft, J., and A., Kraft. 1978. On the relationship between energy and GNP. Journal of Energy Development 3: 401–403 2. There are several studies of causality between sources of energy and gross domestic product (GDP). Some important references are as follows. (a) Ferguson, R., W., Wilkinson, and R., Hill. 2000. Electricity use and economic development. Energy Policy 28: 923–934 (b) Ghosh, S. 2002. Electricity consumption and economic growth in India. Energy Policy 30: 125–129. [International Energy Agency Statistics Oil Information 2005] (c) Goldar, B., and H., Mukhopadhyay. 1990. India’s petroleum imports: an econometric analysis. Economic and Political Weekly 7: 2373–2374 (d) Jumbe, C. B. L. 2004. Cointegration and causality between electricity consumption and GDP: empirical evidence from Malawi. Energy Economics 26: 61–68 (e) Morimoto, R., and C., Hope. 2004. The impact of electricity supply on economic growth in Sri Lanka. Energy Economics 26(1): 77–85 (f) Rufael, Y. W. 2006. Electricity consumption and economic growth: a time series experience for 17 African countries. Energy Policy 34: 1106–1114 3. Nachane, D. M., R. M., Nadkarni, and A. V., Karnik. 1988. Cointegration and causality testing of the energy–GDP relationship: a cross country study, Applied Economics 20: 1511–1531 4. Along with other growth-determining fundamentals and total factor productivity growth, “energy consumption” is one of the determinants of economic growth of a country. Therefore, sustaining economic growth obviously requires sustaining growth in energy consumption. 5. The data on energy consumption and its various sources have been collected from the Planning Commission, 2010, for 1980/81–2009/10. Data given in million tonnes of oil equivalent (MTOE) are translated into their natural logarithms. 6. The co-integration error correction methodology is the most popular timeseries method in estimating regression models without spurious results and to find the causality between variables. The coefficients of error correction models are used to explain short-term causality. 7. (a) Granger, C. W. J. 1988. Some recent developments in a concept of causality. Journal of Econometrics 39: 199–211 (b) Sims, C. A. 1972. Money, income, and causality. American Economic Review (September): 540–552 8. Phillips, P. C. B., and P., Perron. 1988. Testing for a unit root in time series regression. Biomètrika 75(2): 336–346 9. Johansen, S. 1988. Statistical analysis of cointegration vectors. Journal of Economic Dynamics and Control 12(2/3): 231–254

5 Energy Efficiency and Conservation India imports 80% of its crude oil; hence, reducing such high dependence on imports significantly contributes to energy security. India’s energy intensity, according to the International Energy Agency (IEA), is around 0.85 tonnes of oil equivalent (toe) per $1000 of gross domestic product (GDP) compared to around 0.175 toe per $1000 of GDP of Organization for Economic Cooperation and Development (OECD) countries and around 0.3 toe per $1000 of GDP of world average. As per the US Energy Information Administration, India’s energy intensity in 2008 was 18 824.7034 British thermal units (Btu), which is around 70% higher than that of the European Union and 59.6% higher than that of the USA (Table 1). While the energy intensity has been decreasing over a period of time, it is still 79% higher than the world’s average. Although there may be variations in the values of this indicator due to different calculating methods, these figures broadly indicate the low efficiency of India’s energy sector. At the same time, this high intensity underpins enormous potential for saving energy (around 60%–70%) through energy efficiency measures in times to come. According to the IEA, global energy demand could grow by 55%1 from 2005 to 2030, and consequent increase in CO2 emissions by 57%. How will we meet this demand? Energy efficiency measures are a crucial recipe not only for achieving security but also for containing the environmental impact of energy consumption in addition to safeguarding huge investments.

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Table 1 Energy intensity—total primary energy consumption per dollar of GDP (Btu per year with US dollars at 2005 market exchange rates) Country

2004

2005

2006

2007

2008

Canada

12 564.06

12 488.99

11 849.08

11 807.50

11 711.10

USA

8 233.76

7 995.01

7 743.18

7 749.32

7 602.96

Brazil

10 524.30

10 600.67

10 567.20

10 390.86

10 396.67

Europe

5 833.08

5 732.85

5 583.78

5 380.33

5 347.96

France

5 374.33

5 293.75

5 179.63

4 980.66

5 018.77

Germany

5 334.17

5 177.35

5 087.69

4 791.53

4 815.42

Italy

4 585.01

4 581.15

4 448.73

4 321.18

4 352.11

Spain

5 863.84

5 761.30

5 581.32

5 522.52

5 301.79

Sweden

6 419.01

6 286.30

5 704.16

5 598.55

5 582.85

Switzerland

3 528.73

3 358.82

3 297.60

3 176.27

3 203.90

UK

4 448.59

4 354.64

4 183.39

3 924.04

3 888.03

Russia

40 908.63

38 651.51

35 016.29

33 678.95

32 387.68

South Africa

22 231.10

20 741.95

20 289.34

20 055.97

20 038.44

China

31 026.17

30 235.74

28 655.50

26 851.89

26 717.55

India

20 005.60

19 468.41

19 204.45

18 690.90

18 824.70

Japan

50 94.35

49 74.69

49 17.56

47 47.38

46 51.30

South Korea

10 965.86

10 923.75

10 511.77

10 393.22

10 347.32

New Zealand

8 282.91

7 861.61

7 739.59

7 489.37

7 539.70

Singapore

16 210.03

16 215.93

15 266.05

15 039.28

15 784.20

World

10 163.23

10 088.49

9 883.91

9 735.66

9 798.42

According to the World Energy Council (WEC), at the macro level, energy efficiency can be defined as the optimum energy used to produce one unit of economic activity (for example, the energy used per unit of GDP or value added). In a way, energy efficiency is associated with economic efficiency and includes all kinds of technological, behavioural, and economic changes that reduce the amount of energy consumed per unit of GDP.2 At the micro level, energy efficiency refers to the optimum energy used for a given level of services (for example, lighting, heating, and transportation). Energy is a critical input for the growth and

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115

development of an economy. As the economy grows, the demand for energy grows (Figure 1). Thus it is essential to maximize efficiency to reduce the gap between the demand and supply. In view of the scarce energy resources in India, energy efficiency is crucial for enhancement of energy security, either at a low or no cost. Although optimum consumption of energy is, up to some extent, a matter of individual behaviour, appropriate equipment, policy regulations, measures, and dissemination of information can bring phenomenal changes in attaining energy efficiency at both the micro and macro levels. Creating awareness and implementation of regulations is a huge challenge in India. From the supply side, there are multiple market barriers that prevent consumers from choosing the most cost-effective solution. These include the following. • Lack of information or partial availability of such information • Either non-availability or limited availability of efficient appliances and production devices • Absence of energy-efficient equipment • Absence of appropriate technical, commercial, and financial services • Lack of credibility and transparency in the overall cost of energy security

Figure 1 Growth of world energy consumption, GDP, and population (taking the year 1990 as base [=100]) Source UNIDO (United Nations Industrial Development Organization). 2010. Compilation of Energy Statistics for Economic Analysis. In Development Policy and Strategic Research Branch Working Paper 01/2010. Vienna: UNIDO

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ENERGY EFFICIENCY INDICATORS Energy efficiency indicators are designed to monitor changes in energy efficiency and allow cross-country comparisons of various energy efficiency situations. According to the WEC, two types of indicators are generally used for the description of energy efficiency: (1) economic and (2) techno-economic ratios. Economic ratios, referred to as energy intensities, are defined as ratios between energy consumption, generally measured in energy units, that is, tonnes of oil equivalent (toe), and indicators of economic activity, measured in monetary units at constant prices like GDP.3 Techno-economic ratios are calculated at a disaggregated level by relating energy consumption to a ratio of an indicator of activity measured in physical terms (for example, quantity of steel, number of passenger-kilometres) to a unit of consumption (for example, per vehicle, dwelling). These techno-economic ratios are called unit consumptions. However, a general indicator of energy efficiency performance is the primary energy intensity, which is measured as the amount of energy required by each country or region to generate one unit of GDP. Trends in energy intensities are influenced by changes in the economic and industrial activities of the country. Defining energy intensity is a difficult task. The development of an energy efficiency indicator in any country is constrained by the availability of data. The configuration of certain technologies and processes can also impose limitations on data collection. Besides, structural, behavioural, and economic differences can cause steep variations in energy intensity indicators of various countries. Energy intensities generally decrease with economic development and are converging. The reduction in energy intensity between 1990 and 2006 in most world regions resulted in large energy and CO2 savings, estimated at 4.4 giga tonnes of oil equivalent (GTOE) of energy in 2006 (50% in China, 20% in North America, and 10% in Europe) and 10 GT of CO2.4

ENERGY EFFICIENCY POLICIES An energy efficiency policy is, therefore, considered here in a broad sense. It includes all public interventions (policy measures) aimed

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117

at improving the energy efficiency of a country, through adequate pricing, institutional setting, regulations, and economic or fiscal incentives. As a general rule, energy efficiency policies and measures are economically sound if the macroeconomic benefits of increased energy efficiency achieved by these policies and measures outweigh the overall cost. The cost–benefit ratios may vary significantly at both micro and macro levels. For example, insulating a house makes it obviously more energy efficient from an engineering point of view since lesser energy is consumed for the same comfort. However, this technical improvement at the micro level may not be visible at the macro level; if more houses are built, dwellings get larger and more appliances are used to improve the comfort level. Similar logic applies in the industrial arena. Each factory can decrease its energy consumption per unit of output with more energy efficient technologies, but this may not be seen at the level of the industrial sector if there is, at the same time, an increase in the production or a higher growth in the production of energy-intensive industries.

EVALUATION OF ENERGY EFFICIENCY MEASURES IN INDIA As discussed in the earlier chapter, India’s total energy intensity was very high in the first sub-period, that is, 1970–80. However, since the 1980s, it has been decreasing, indicating increased energy efficiency. In fact, the efficiency of commercial energy in all subsectors has been increasing since 1970. This may be due to several factors, some of them being demographic shifts from rural to urban areas, structural economic changes towards lesser energy-intensive industry, technological assessments, impressive growth of services, improvement in efficiency of energy use, and inter-fuel substitution. However, to attain 9%–10% economic growth in the coming years, efforts must be made to further enhance the efficiency in energy use. Moreover, compared to the developed countries, India is far behind in maintaining energy efficiency. Despite the financial attractiveness of energy efficiency investments and sustained efforts in technical capacity building to deliver energy efficiency solutions, there has been limited adoption of efficiency technologies and replication of best practices. In countries like India where people and the government are striving to obtain basic energy services and maximize their outputs

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Energy Security and Economic Development in India

from basic economic activities, juxtaposition of energy efficiency measures in these activities at this stage is a tall agenda. The tendency will be more on greater investments in capacity expansion than energy efficiency measures. In addition, there are numerous barriers and market failures for energy efficiency investments in India, similar to those typically seen at the global level. Besides these barriers, there are India-specific constraints such as access to finance, which is particularly acute but not limited to small to medium-sized enterprises (SMEs). SMEs constitute more than 80% of the total number of industrial enterprises in the country, accounting for 45% of industrial production, 17% of GDP, and 40% of India’s exports.5 These SMEs have greater constraints in accessing adequate and timely financing for energy efficiency on competitive terms, particularly long-term loans and working capital loans. In some cases, pricing policies lead to significant distortions and inefficiencies—such as free power to consumers in the agricultural sector, leading to unsustainable use of natural resources. Other well-documented barriers to the adoption of energy efficiency and demand-side management schemes in India include: (1) high up-front transaction costs; (2) lack of incentives to utilities that perceive demand-side management as a loss of market base; (3) lack of corporate leadership on energy efficiency and focus on increased outputs, commercial competitiveness, quality, and profitability; (4) lack of intermediation capacity and incentives; (5) absence of a reliable measurement and verification regime; (6) lack of trained personnel to integrate technological, financial, and commercial aspects; and (7) difficulty in collecting data regarding end users of energy.6 Although there is a lack of data to track past performance, several studies show that actual implementation of targeted government programmes aimed at energy efficiency and demand-side management have been sluggish. As a result, in the Ninth Five-year Plan, the Energy Conservation Act was passed and the Bureau of Energy Efficiency (BEE) was established with effect from 1 March 2002 under the provisions of the Energy Conservation Act 2001. The act was enacted to spearhead improvement in energy efficiency of the economy through various promotional and regulatory measures, while the BEE would be in direct charge of improvement through

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119

various regulatory and promotional instruments. The mission of BEE is to assist in developing policies and strategies with a thrust on selfregulation and market principles. The primary objective was to reduce the energy intensity of India’s economy. Subsequently, the Tenth Fiveyear Plan targeted energy savings of 85 million kWh—about 13% of the estimated demand of 719 000 million kWh—by the end of the Tenth Plan. During the Eleventh Five-year Plan, it has been targeted to achieve 5% reduction. This was envisaged to be achieved with the active participation of all stakeholders, resulting in accelerated and sustained adoption of energy efficiency in all sectors.7 The Standards and Labelling (S&L) Programme of the BEE has also included distribution transformers in 2008/09. The distribution transformer is one of the primary electrical equipment used in large quantities by all electricity distribution companies. Energy efficiency improvement in these transformers will have a significant impact in reducing distribution losses, according to the study conducted by the National Productivity Council.8 The National Mission for Enhanced Energy Efficiency (NMEEE) is one of the eight missions under the National Action Plan on Climate Change. The objective of the mission is to achieve growth with ecological sustainability by devising cost-effective strategies for enduse, demand-side management. The Ministry of Power and BEE have been entrusted with the tasks of preparing the implementation plan for the NMEEE. They have also been charged with the responsibility of up scaling the efforts to create and sustain a market for energy efficiency and unlock investment of around `740 000 million. The mission, by 2014/15, is likely to achieve about 23 million tonnes of oil equivalent (MTOE) of fuel savings in coal, gas, and petroleum products, along with an expected avoided capacity addition of over 19 000 MW. The CO2 emission reduction is estimated to be 98.55 million tonnes (MT) annually.9

National Energy Conservation Awards Scheme The Ministry of Power, through BEE, organizes the annual energy conservation awards function on the occasion of the National Energy Conservation Day (December 14). These awards recognize innovation and achievements in energy conservation by the industry, commercial

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Energy Security and Economic Development in India

buildings, and railways. They also help raise awareness about the need and efficacy of energy conservation and efficiency. For 2009, the aviation sector and manufacturers of BEE star label appliances have also been considered. Under this scheme, the awards are a recognition of the demonstrated commitment to energy conservation and efficiency. The National Energy Conservation Award Programme has resulted in electricity saving of 2450.6 million units (MU), equivalent to an avoided generation capacity of 358.6 MW. Apart from this, these programmes were able to reduce 1.366 MTOE of thermal energy. The Energy Conservation Building Code (ECBC) programme has given a fillip to the construction of energy-efficient buildings and systems. Although the above initiatives are commendable, these efforts have to be diversified with public–private partnerships, especially with special focus on the prime sectors of energy consumption, which are highlighted as follows.

ENERGY IN THE BUILDING SECTOR Buildings account for 40% of the energy use in most countries and hold great potential for cost-effective energy savings. India has historically seen a consistent rise of 5% in annual building (residential and commercial) energy consumption. Building energy consumption increased its share from 15% in the 1970s to nearly 32% in 2004. This growth has been particularly marked in the commercial sector at 8%. The 17th Electric Power Survey forecasts an annual growth of 10.5% in the commercial sector over the next five years.10 The Construction Industry Development Council estimates a more consistent annual growth rate of about 10% in new constructions. Figure 2 shows this historical trend in new constructions. Due to a major boom in the construction sector between 2005 and 2010, there was a spurt in the energy consumption in this sector, although statistics in this regard are not yet updated. But we do know that in 2007, the residential sector, which includes the service sector, accounted for about 47% of the total final energy consumption in India. Energy use in buildings is affected by the physical characteristics of the buildings, including building design, structure and layout, location, equipment efficiency, and the occupants’ energy-related

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Figure 2 Historical trends in new construction Source  Sathaye, J., S., de la Rue du Can, M., Iyer, M., McNeil, J., Roy, M., Roy, and S., Roy Chowdhury. 2010. Strategies for low carbon growth in India: industry and nonresidential sectors. Details available at

behaviour. Specifically, the two most important parameters that determine energy use in this sector are the building floor space and the end-use technologies in place. These two measures provide different aspects of commercial building usage, which allow energy analysis to focus on the characteristics of building. Energy consumption is also driven largely by the number and type of energy-using equipment and the time periods of the operation of the building. Out of the total commercial floor space in India, about 30% is in public sector.11 The distribution further indicates that warehouses, offices, and schools account for the largest share of total floor area, followed by health care and other services. Schools are primarily in the public sector, while offices and health have an equal proportion in the public and private sectors. Across all these groups, annual electricity consumption for lighting and cooling in new constructions is currently 173 kWh/m2, which is 27% higher than the current average of 137 kWh/m2 for the existing stock. While aggressive efficiency measures in lighting and cooling can reduce power consumption growth in the new constructions, they are likely to be fully offset by the increased level of appliance use due to modernization of existing buildings—both in terms of building renovation and of purchase and use of more electric equipment. In any case, maximizing the energy efficiency of buildings is a complex process that requires a high degree of integration in architecture, design, construction, and building systems and materials. It may be prudent to introduce differential policies targeting new constructions.

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Energy Security and Economic Development in India

Lack of awareness regarding efficient technologies, absence of qualified “green” technicians, high initial investment costs, and absence of proper implementation mechanisms threaten marketsavvy energy saving measures. Collecting accurate data on residential and service sectors is a greater challenge in India as we need to deal with a large number of scattered dwellings and businesses. Besides, a larger proportion of energy comes from traditional biomass, which is difficult to estimate. These barriers can be eliminated through changes in the building code. The concepts suggested by the IEA like passive energy houses (PEH) and zero energy buildings (ZEB), which are very low or have no net energy consumption, are worth implementing. Initiatives in this regard can be taken so that such houses are available in the market; they can set new benchmarks in the building industry. Other initiatives include developing new building codes incorporating mandatory energy efficiency standards; evolving a new package to enhance energy efficiency, particularly focusing on windows and other glazed areas; introduction of mandatory energy certification schemes that ensure buyers and renters of buildings get information on the energy efficiency of buildings and major opportunities for energy savings; and dissemination of information. In fact, a one-time investment by constructing new buildings that meet modern standards of illumination, temperature control, and air quality can be more energy efficient. With further research and development, these energy-saving models can be extended to new commercial structures as well. Some initiatives in this regard have already been taken in India. The ECBC was launched in May 2007 and is presently in vogue on a voluntary basis. The ECBC sets minimum energy standards for new commercial buildings having a connected load of 500 kW or contract demand of 600 kVA. Energy efficiency measures are also implemented in existing buildings through energy service companies (ESCOs). These companies provide innovative business models through which the energy-saving potential in existing buildings can be captured and the risk faced by building owners can also be addressed. However, unless such measures are made mandatory, particularly for new constructions, there will not be major gains in energy efficiency measures.

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India has also introduced the concept of star-rated buildings for commercial structures. Under this scheme, office buildings and BPOs are labelled as star-rated buildings according to their actual energy performance indices on a scale of 1 to 5 star, with a 5 star buildings being the most energy efficient one.12 The sets of standard EPI bandwidths developed to rate buildings under this scheme for different climatic zones indicate only the range of variations in the energy performances of different office building types lying in a particular climatic zone. They do not indicate whether the building has taken any energy saving measure to be eligible for issue of this label.

APPLIANCES AND EQUIPMENT Consumption of energy by appliances and equipment is one of the fastest growing energy patterns. Promoting most efficient technologies and stimulating the market to produce new technologies will be crucial to achieve energy savings in this sector. The S&L Programme for equipment and appliances was launched by the BEE on 18 May 2006, with the objective of providing consumers with information on the energy performance of commonly used equipment and appliances. Labelling programmes for several appliances have been introduced, including air conditioners, refrigerators, tubular fluorescent lamps, ceiling fans, colour televisions, electric geysers, liquefied-petroleum gas (LPG) stoves, distribution transformers, and induction motors. The Agriculture Demand Side Management (AgDSM) programme targets replacement of inefficient pump sets. The replacement of inefficient equipment will result in saving energy and cost. The AgDSM programme was initiated to accelerate demand side management (DSM) measures in the agriculture sector. Under this scheme, upgrade of pump set efficiency would be carried out through public–private partnership mode. Energy audit of all the pumps would be conducted to measure the efficiency of pump sets. After the energy audit, existing pumps and motors would be replaced with new BEE star labelled ones. Farmers will get BEE star labelled pumps and motors free of cost. A recent study by the National Productivity Council on various schemes developed by the BEE has revealed that the S&L Programme

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has resulted in electricity saving of 4350.92 MU, equivalent to an avoided generation capacity of 2179.31 MW.13 While the above measures are commendable, the government should also make policies for the preferred use of electronic devices that enter low-power modes automatically after a reasonable period when not being used, and the user can easily switch the appliance to its lower power level. Emphasis should be placed on industry-wide protocols for power management. Television sets should specify the maximum power levels while “on” and “off”; requirements for low energy consumption should be incorporated in operation agreements for television service providers. According to IEA estimates, if implemented globally, the above recommendations could decrease energy consumption by appliances by one-third till 2030.

LIGHTING According to a 2010 study titled “Energy-intensive sectors of the Indian economy: path to low carbon development”, jointly conducted by the World Bank, Government of India, and Planning Commission, lighting accounts for approximately 30% of the total residential electricity use in 2007, followed by fans, refrigerators, electric water heaters, and televisions.14 Approximately 4% of the total residential electricity used was for stand-by power that many modern appliances consume when they are turned on. The Bachat Lamp Yojana scheme launched in 2009 by the BEE aims to promote energy-efficient lighting in India.15 The scheme aims at a reduction of 6000 MW of energy generation capacity translating into a potential saving of `240 000 million per annum. The Municipal Demand Side Management (MDSM) Scheme targets replacement of equipment in street lighting. Municipalities spend a large amount of their revenue on purchasing energy for providing local public services such as street lighting and water supply. Energy efficiency in municipal water supply system can save water and energy while reducing cost and improving service. While such targets are good, there will be huge challenges in their implementation. Success lies in overcoming such challenges.

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According to the IEA, at least 38% of global lighting energy consumption could be saved cost effectively by greater use of efficient lighting technologies. Most electricity for lighting is consumed indoors. To achieve maximum indoor savings, policies are needed that target the performance of the lighting system as a whole. This places responsibility upon the agents who design, install, and operate such systems. For outdoor lighting, simply replacing inefficient mercury vapour lamps with ceramic metal halide lamps or high pressure sodium lamps would reduce energy costs by 40% and have a rate of return of around 50%. According to IEA estimates, the above recommendations could cost-effectively decrease energy consumption globally by one-third till 2030.16 The government should phase out inefficient incandescent bulbs with higher efficiency lamps. Energy performance requirements should be included in lighting systems within the building codes and ordinances applicable to the installation of lighting in commercial, public, industrial, outdoor, and residential sectors. These requirements should include targeted measures to stimulate better control of lighting and avoidance of illumination of unoccupied spaces. It should be based upon a review of recommended lighting levels, including a full peer review comparing local recommendations with those applied internationally, to ensure that there are no excessive lighting levels recommended in the national guidelines.

TRANSPORT SECTOR Road transport is a significant consumer of energy in the urban environment and also a major mode of transport for inter-city movement, with 65% share in freight and 90% in passenger traffic. According to the 2006 Integrated Energy Policy Report, if the energy efficiency of all motorized transport vehicles is increased by 50%, our oil requirement will go down by 86 MT by 2031/32. If the Indian Railways can win back the freight traffic they have lost to trucks and manage to carry 50% of freight billion tonnes kilometre (btkm), oil requirement can go down by 38 MT. These two initiatives in the transport sector can together reduce our oil requirement by over 25% from the most oil-intensive scenario in 2031/32. Since urban mass transport is much more fuel efficient, per passenger kilometre compared to private vehicles, greater development of such systems can significantly contribute to energy conservation.17

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Energy Security and Economic Development in India

Underdeveloped road infrastructure and poor maintenance of roads resulting in substantially bad road surfaces will hamper fuel efficiency. According to the data collected by a World Bank-funded project, 30%–40% of state roads are in bad conditions, increasing fuel consumption by 8%–12% compared to well-maintained roads. An initiative similar to Euro I norms to reduce emissions and increase energy efficiency, called the “Bharat 2000”,18 has been introduced. These norms have been implemented throughout the country since 1 April 2000 for all categories of vehicles manufactured in India. Besides, awareness and training programmes have been undertaken to educate drivers. However, major initiatives, as suggested in the integrated energy policy, need to be implemented if substantial gains in energy efficiency have to be registered. Apart from the above, the IEA has recommended measures like fuel-efficient tyres and mandatory fuelefficient standards for vehicles. Fuel-efficient tyres can be developed by measuring the rolling resistance of tyres, with a view of establishing labelling, and possibly maximum rolling resistance limits, where appropriate, for tyres of vehicles running on roads. Other means of maintaining fuel-efficient tyres include promoting proper inflation levels and mandatory setting up of tyre pressure monitoring systems on new vehicles.

INDUSTRY According to the IEA, industry accounts for nearly one-third of the total global primary energy supply and 36% of CO2 emissions. With 35% of the final energy consumption, the industrial sector in India is particularly carbon intensive. The energy consumption in the industrial sector grew at an average rate of 5.6% annually in the 1990s and 7.3% annually during 2000–05. Industry contributed 26% of GDP in 2005.19 The industrial sector broadly comprises energy-intensive industries (such as iron and steel, fertilizer, petroleum refining, cement, aluminum, and pulp and paper) and light industries (such as food processing, textiles, wood products, printing and publishing, and metal processing). The energy-intensive industries accounted for 66% of the energy consumed in the sector in 2005. The cement industry has recorded by far the most impressive energy intensity reduction.20

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In 1973, iron and steel was the largest consumer of coal (38.5%), followed by cement (27.8%) and textiles (16.8%). In 1983, the cement industry exceeded the iron and steel industry in coal consumption. In 2000, the cement and iron and steel industries each consumed 30% of industrial coal use. However, industry has recorded greater energy efficiency improvement since the late 1980s than any other sector in India. In addition, total primary energy consumption in industry has increased at a slower rate than the sector’s value added since the mid-1980s. Many factors account for this trend, including greater competition following the liberalization of the economy in the early 1990s, rising energy prices starting in the late 1990s, and the promotion of energy efficiency schemes through the BEE since the introduction of the Energy Conservation Act in 2001. Some of the measures to improve energy efficiency include promotion of fuelefficient practices and equipment; replacement of old and inefficient boilers and other oil-operated equipment; and fuel switching and technology upgrade. India has nearly 3 million SMEs,21 which constitute more than 80% of the total number of industrial enterprises in the country. The Indian Institute of Foreign Trade estimates that approximately 60% of the country’s GDP comes directly or indirectly from such enterprises. Numerous sector-specific studies have confirmed that energy intensity in industry can be reduced with the widespread adoption of commercially available technologies, but SMEs have fallen behind larger Indian industry benchmarks in productivity, technology modernization, and energy efficiency. SMEs are facing high and rising energy costs and increasing global competition. In the past, wide-ranging governmental fiscal incentives and other interventions have been offered to SMEs to upgrade technologies and improve efficiency, but they have not resulted in large-scale replication. Since SMEs are so scattered, the energy efficiency measures are all the more difficult to be implemented. Nevertheless, the BEE, in consultation with designated state agencies, has initiated diagnostic studies in 25 high energy consuming SME clusters to stimulate energy efficiency measures. It has developed cluster-specific energy efficiency manuals/ booklets and other documents to enhance energy conservation in SMEs. In the short run, energy efficiency measures can be focused on the SME sector more rigorously. Energy-intensive industries require huge

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capital investments to implement energy efficiency measures. In the long run, unless a technology revolution emerges, it is difficult to make progress in this sector.

POWER SECTOR Since 80% of power plants are coal based, the challenges of energy efficiency measures in the power sector lie in both the supply side of coal and equipment. Nearly all coal-fired power plants in the country rely on one technology (steam-based sub-critical pulverized coal). According to Chikkatur (2008),22 the average efficiency of the entire fleet of coal-fired power plants in the country is only 29%. This relatively low efficiency of coal-fired power plants is linked to the poor quality and underpricing of coal. In general, inferior grades of non-coking coal are used for power generation in India. According to the government’s Integrated Energy Policy,23 the properties of coal used for power generation are generally not conducive to high combustion efficiency. The gross calorific value of coal burnt in India’s power plants is only about 3500 kcal per kg, and the ash content is in the range of 27%–42% with the water content ranging from 7%–20%. These characteristics lead to higher specific coal consumption (in comparison with imported coal), high unburnt carbon losses, higher auxiliary power consumption, and low overall efficiency. In addition to these technical characteristics, pricing and coal supply chain issues make it difficult to ensure higher efficiency in coal-fired plants. Some reforms in the power sector have helped to enhance the combustion efficiency of conventional coal technology leading to conservation of coal and savings in emissions. These reforms include regulatory restructuring, corporatization, privatization, and unbundling of state-owned utilities. The 1998 Regulatory Commissions Act empowers commissions to rationalize electricity tariffs and promotes environmentally benign policies. Corporatization is altering state electricity boards from state ownership and administration to business-like corporations as defined by the Indian Company Act 1956. The Indian Electricity Act of 1910 and the Electricity Act of 1948 have been amended to permit private participation in the generation and distribution of power. Privatization in transmission has been encouraged by the recognition of exclusive transmission companies.

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ENERGY CONSERVATION Transmission and distribution losses can create a deep dent on energy security. It is often stated that 1 kWh of power saved from transmission losses is equal to 1.5 kWh of power generated. While such statements may not necessarily be accurate, they broadly indicate the significance of losses that can otherwise be avoided. It may also not be out of context to briefly analyse the transmission and distribution segment of India’s electricity sector. Subsequent to the advent of economic liberalization in 1991, several efforts have been made to separate transmission and distribution operations from generation of electricity. Several state governments in India have already created separate private companies for this purpose. The private sector has also been encouraged to make investments in this sector. At a national level, the entire country has been divided into five regions: northern, north-eastern, eastern, southern, and western. Power supply to end consumers such as domestic residential connections, industrial load, agriculture load, and public street lighting is made by distribution companies (Discoms) which hold licenses to make such supply within a specified geographical area. However, according to a Planning Commission report in 2010, “Although the power transmission segment has been opened to private investment in 1998, there has been only a limited success in attracting private investment”. Nevertheless, transmission and distribution (T&D) losses at the national level, which were at 29% in 2006/07, fell to around 27% in 2007/08. Still aggregate technical and commercial (AT&C) losses are reported to be over 30%.24 A transparent regulating system and a sound infrastructure of transmission and distribution are urgently needed. The central and state electricity regulatory commissions and the Appellate Tribunal for Electricity (ATE), state electricity boards (SEBs) need to be segregated into generation, transmission, and distribution companies. Various policies like the National Electricity Policy, Tariff Policy, Rural Electrification Policy mandated by the Act, along with rules and regulations, have to be in place. Trading licenses have to be issued, and power trading has to commence. The national and state grid codes have to be notified. India has already taken several steps in this regard. The Power Grid Corporation of India Ltd (PGCIL), created in 1992, has emerged as the

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Energy Security and Economic Development in India

central transmission utility of the country since 1998. It is engaged in power transmission with the responsibility of planning, coordination, supervision, and control over inter-state transmission system and operation of national and regional power grids. The national grid was established in 2000. Presently, it carries more than 50% of the country’s electric power and a majority of the inter-regional power. For efficient utilization of precious right of way (RoW), the company is deploying state-of-the-art technologies such as high temperature low sag conductors, series compensation, including thyristor control, multi circuits, compact and tall towers, and high surge impedance loading lines. The company is also giving priority to research activities with potential for societal, environmental, and national benefits by the application of advance technologies and finding solutions to gear up for future challenges. After commissioning and operating 765 kV ultra-high voltage alternating current (UHVAC) and ±500kV high-voltage direct current (HVDC) transmission system, the PGCIL is now working on higher transmission voltages of 1200 kV UHVAC and ±800 kV HVDC systems to achieve efficient utilization of RoW and increase power transfer capability for transfer of bulk power over long distances.25 For further improvement in operational efficiency, the PGCIL has initiated the process of establishing national transmission asset management centres. Maintenance service hubs have also been created to cater to the group of sub-stations. The PGCIL is also taking leadership initiative to implement smart grid technology in the country. In this direction, it has implemented the Smart Grid Pilot Project using Wide Area Measurement System (WAMS) in the Northern Region Grid for the first time in India. The India Smart Grid Task Force is a nodal point for government’s activities related to smart grid. The PGCIL is playing a catalytic role in facilitating interconnection between neighbouring countries leading to the formation of the South Asian Association for Regional Cooperation (SAARC) grid for effective utilization of resources for mutual benefits. Transmission links with Bhutan and Nepal already exist and they are being further strengthened. Transmission links with Bangladesh are under implementation and that with Sri Lanka are under an advanced stage of finalization.

Smart Grid Smart grid is a digital technology that allows for two-way communication between the utility and its customers with sensors

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along the transmission lines. The smart grid consists of controls, computers, automation, and the technologies that are integrated with the electrical grid to respond digitally, thus connecting various forms of energy and responding to quickly changing demands.26 In summary, while India’s energy intensity is gradually decreasing and has come down to 0.56 at present, it is still 60%–70% higher than the world average and industrialized countries. Energy intensity is an indicator of energy efficiency. However, calculating energy intensity is not a simple exercise. In India, where a substantial amount of energy is supplemented by biomass, it is all the more difficult to evaluate energy intensity. While the present intensity reflects the low efficiency of the energy sector, it also gives an opportunity to achieve significant savings in the energy sector particularly at a stage where India is poised to achieve a sustained growth rate of 8%–10%. Energy efficiency is a crucial recipe in attaining energy security not only through the saving of avoidable energy production but also through lesser contribution of CO2 emissions. In a developing country like India where mobilizing investments is a huge challenge, these measures go a long way in addressing these problems. The industrial, transport, building, and lighting sectors are the major consumers of energy. While the efficiency measures of the industrial sector requires greater investments in technology, energy efficiency in building, lighting, and transport sectors can be achieved with relatively lesser investment. In the short run, focus should be made on these sectors. The development of a formal energy management policy at the organizational level with the appointment of full-time energy managers will go a long way in ensuring energy efficiency. A package of policies and measures to promote energy efficiency in SMEs should be developed since SMEs contribute more than 80% of the total number of industrial enterprises. Since there may be difficulties in developing independent efficiency measures in the small-scale sector, a coordinated mechanism may be more appropriate. Financial institutions should be encouraged to invest in energy efficiency projects with fiscal incentives. Instead of subsidies, tax reductions or tax holidays for technology producers will be beneficial in promoting energy-efficient technologies. In the long run, India has to go for technological revolution to achieve energy efficiency in the industrial sector. Energy conservation can be maintained with substantial reduction in transmission and distribution losses, which are presently occurring

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in the range of 27%–30%. There is a huge scope for technical advancement of transmission and distribution networks with the help of automation and control technologies and information and communications technology, which will result in huge savings of energy. Free subsidies and erroneous pricing policies that lead to excessive and irrational usage of energy will result in huge losses of power. Corrective steps in this regard should be taken immediately.

NOTES 1. IEA (International Energy Agency). 2008. Energy efficiency policy recommendations. Details available at 2. WEC (World Energy Council). 2008. Energy efficiency policies around the world: review and evaluation. Details available at 3. WEC (World Energy Council). 2004. Energy efficiency: a worldwide review— indicators, policies, evaluation. Details available at 4. WEC (World Energy Council). 2008. Energy efficiency policies around the world: review and evaluation. Details available at 5. Gaba, K. M., C. J., Cormier, and J. A., Rogers. 2011. Energy intensive sectors of the Indian economy: path to low carbon development. Details available at 6. Gaba, K. M., C. J., Cormier, and J. A., Rogers. 2011. Energy intensive sectors of the Indian economy: path to low carbon development. Details available at 7. Gaba, K. M., C. J., Cormier, and J. A., Rogers. 2011. Energy intensive sectors of the Indian economy: path to low carbon development. Details available at 8. NPC (National Productivity Council). 2010. Report on Verified Energy Savings with the Activities of Bureau of Energy Efficiency for the year 2009/10. New Delhi: NPC 9. Garnaik, S. P. 2008. National mission for enhanced energy efficiency. Details available at 10. CEA (Central Electricity Authority). 2007. Report on 17th Electric Power Survey of India. New Delhi: CEA

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11. ESMAP Briefing Note 006/10. Energy intensive sectors of the Indian economy: path to low carbon development. Details available at 12. NPC (National Productivity Council). 2010. Report on Verified Energy Savings with the Activities of Bureau of Energy Efficiency for the year 2009/10. New Delhi: NPC 13. NPC (National Productivity Council). 2010. Report on Verified Energy Savings with the Activities of Bureau of Energy Efficiency for the year 2009/10. New Delhi: NPC 14. ESMAP Briefing Note 006/10. Energy intensive sectors of the Indian economy: path to low carbon development. Details available at 15. Bhachat Lamp Yojana, Bureau of Energy Efficiency (BEE), details available at 16. IEA (International Energy Agency). 2008. Energy efficiency policy recommendations. Details available at 17. Planning Commission. 2006. Supply Options. In Integrated energy policy: report of the expert committee. New Delhi: Planning Commission. Details available at 18. Ministry of Environment and Forests: India’s initiatives. Details available at

19. Ministry of Statistics and Programme Implementation. Details available at

20. ESMAP Briefing Note 006/10. Energy intensive sectors of the Indian economy: path to low carbon development. Details available at 21. ESMAP Briefing Note 006/10. Energy intensive sectors of the Indian economy: path to low carbon development. Details available at 22. Chikkatur, A. P. 2008. Coal initiative reports: a resource and technology assessment of coal utilization in India. Details available at 23. Planning Commission. 2006. Energy Policy Options/Initiatives. In Integrated energy policy: report of the expert committee. New Delhi: Planning Commission. Details available at

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24. Transmission and distribution of electricity in India: regulation, investment, and efficiency, by Yoginder Alagh, Chairman, IRMA and Former Minister of Power and Science Technology. Details available at 25. PCIL (Powergrid Corporation of India Ltd). 2011. Annual Report 2010/11. Details available at 26. Smartgrid. Details available at

6 Energy and Environment Attaining energy security at the cost of environmental degradation leads to denial of social security, not only to the present generation but also to the future generation. Thus another daunting task in attaining energy security is to strike a balance between energy consumption and environmental conservation. The impact of human activities on the climate and climatic systems is unequivocal and long lasting. Climate change, which has origins in anthropogenic activities, has a significant role in the economic development of India, as many sectors are climate sensitive. Though the exploration and processing of every energy source contributes to some amount of emissions or other forms of environmental impact, the degree of such pollution or impact varies for each source of energy. The emission of greenhouse gases (GHGs) is on a sustained rise due to the burning of fossil fuels for generating various forms of energy. Before we examine the impact of some of the major sources of energy, it may be worthwhile highlighting the nature of pollution that the exploration and processing of energy inflicts on the environment. At present, fossil fuels have been playing dominant role in every section of economy, which are major sources of emissions. Fossil fuel combustion oxidizes the carbon in the fuel and it is emitted as CO2. Some carbon is also released in the form of CO, CH4, and non-CH4 hydrocarbons, which will oxidize to CO2 in a span of 10–11 years. This combustion also emits N2O, SO2, and black carbon. While CO is highly poisonous and chemically active, CO2 is inert and less poisonous. However, CO2 hovers in the atmosphere for a long time because of being heavy. It creates a confined space

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and acts as a GHG, warming the earth. Apart from health hazards, warming of the earth exerts significant impact on climate changes such as glacial melt, warming of oceans, and change of monsoon cycles. The ocean can assimilate more CO2 when cold, but its warming will dilute its holding capacity leading to the release of CO2 into the atmosphere. Meteorological records indicate that there has been a rise in the mean annual surface air temperature in India by 0.4°C. The sea levels are also projected to rise causing vulnerability to cyclonic activities and inundation of low lying areas. The continuous warming and changing rainfall pattern over the Indian region may adversely impact human activity. India ranks fifth in the world behind the USA, China, European Union, and Russia in aggregate GHG emissions, but the emissions of the USA and China are almost four times higher than that of India in 2007. While the intensity of emissions in India has declined by more than 30% during 1994–2007, the rise in the quantum of GHG emissions is alarming. According to the Indian Network for Climate Change Assessment (INCCA), the total GHG emissions in India in 2007 were 1727.71 million tonnes (MT) of CO2 equivalents.1 Out of this, the energy sector emitted 1100.06 MT of CO2 equivalents as depicted in Table 1. Out of this, 992.84 MT were emitted as CO2, 4.27 MT as CH4, and 0.057 MT as N2O. About 65.4% of the total CO2 equivalent emissions from the energy sector, that is, 719.31 MT of CO2 equivalents, were from electricity generation (Figure 1). This includes emissions from electricity produced for distribution through grids as well as for captive generation of electricity in various industries as depicted in Figure 1 in Chapter 5. The transport sector emitted 12.9% of the total CO2 equivalent emissions in 2007. The residential sector with combustion of fossil fuel as well as biomass emitted 12.6% of the total GHGs emitted from the energy sector. The remaining GHG emissions of 9.2% were from fuels combusted in the commercial and residential sectors, in agriculture and fisheries, the fugitive emissions from coal mining, and from extraction, transport, and storage of oil and natural gas. According to various projections, the emission in the power sector, the largest contributor of GHG emissions in India, could be in the rage of 1452–1620 MT of CO2 equivalents by 2020. The sectorwise impacts of various sources of energy in general are examined as follows.

Energy and Environment

Table 1

137

GHG emissions in ’000 tonnes (or gigagram) from the energy sector in 2007 CO2

CH4

N2O

CO2 equivalent

Energy

992 836.30

4 266.05

56.88

1 100 056.89

Electricity generation

715 829.80

8.14

10.66

719 305.34

Other energy industries

33 787.50

1.72

0.07

33 845.32

Transport (total)

138 858.00

23.47

8.67

142 038.57

• Road transport

121 211.00

23.00

6.00

123 554.00

• Railways

6 109.00

0.34

2.35

6 844.64

• Aviation

10 122.00

0.10

0.28

10 210.90

Navigation

1 416.00

0.13

0.04

1 431.13

Residential

69 427.00

2 721.94

36.29

137 838.49

1 657.00

0.18

0.04

1 673.18

1.20

1.15

33 658.70

—

31 697.30

Commercial/institutional Agriculture/fisheries Fugitive emissions

33 277.00 —

1 509.40

Bunkers

3 454.00

0.03

0.10

3 484.45

Aviation bunkers

3 326.00

0.02

0.09

3 355.31

128.00

0.01

0.003

1 497 029.20

20 564.20

Marine bunkers Grand total

239.31

129.14 1 727 706.10

Figure 1 GHG emission distribution from the energy sector (MT of CO2 equivalent)

Source INCCA (Indian Network for Climate Change Assessment). 2010. India: greenhouse gas emissions 2007—executive summary. Details available at

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COAL Coal is one of the most copious of pollutants. Each MWh of electrical energy generated from coal releases 850 kg of CO2 and CO apart from small amounts of arsenic, mercury, sulphur, and N2O. Most of these gases are released into the atmosphere as the limited vegetation is unable to absorb the increased release of such gases. Coal combustion spews up considerable quantum of CO, SO2, NO2, and metal oxides, causing global warming and the formation of suspended metal particles in the air causing glacial melt, acid rain, and direct damage to human health. Besides, there are numerous damaging environmental impacts of coal that occur through its mining, preparation, combustion, waste storage, and transport. Mining activity without appropriate safeguarding measures would have adverse impact on ecosystems and the quality of water.2 Broadly, the environmental impact of coal can be classified into two stages: at the mining level and at the combustion stage.

Mining Impacts Mining activities cause acid mine drainage. Coal mines or mines of other metals embedded with rocks containing sulphur-bearing minerals are often abandoned. These pyrites form sulphuric acid when they react with air and water. Such acids flow into the nearby rivers and streams and pollute or contaminate them. Coal mines and coal waste piles also flare up fires. Such coal fires all over the world are contributing to 3% of annual CO2 emissions, which include 40 tonnes of mercury. Similarly, washing of coal generates coal sludge or slurry that contains toxins, leading to pollution or contamination of underground as well as surface water. Coal also contains uranium and thorium. When coal is burnt, the quantities of these radioactive materials are multiplied by 10 times. At some places, coal seams also comprise aquifers, and removal of coal beds might inflict drastic changes in hydrology. Mining activities at mountain tops entail uprooting trees and vegetation causing destruction of forest cover. According to some estimates, such activities have destroyed 6.8% of Appalachia’s forests in the USA. The water used as coolant in coal-based power plants and other industrial activities impacts organisms, thereby altering ecosystems. Transportation of coal also causes air pollutants such as soot. Waste coal, also known as culm, when drained off, can pollute local waterbodies. Since coal mine operations require clearing of trees and vegetation, this contributes to destruction of forests leading to flooding and soil erosion.3

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As enumerated, the impact of coal at the mining stage has numerous adverse impacts. However, in the Indian context, such impacts on geography, water quality, landscape, and soil conditions are yet to be assessed.

Air Pollution from Coal-Fired Power Plants According to the Union of Concerned Scientists, in an average year, a typical coal-fired power plant (500 MW) generates 3.7 MT of CO2 (equivalent to the loss of CO2 absorption capacity by uprooting 161 million trees). It also releases 10 000 tonnes of SO2, which causes acid rain. SO2 also contains small airborne particles that can cause damage to lungs, heart diseases, and other illnesses. Such a power plant also emits 10 200 tonnes of oxides of nitrogen (NOx). These oxides lead to the formation of smog, which can damage lung tissue. It also pumps 500 tonnes of small airborne particles, which can cause bronchitis and other lung-related diseases. It also releases 720 tonnes of CO, which causes headache and increases stress among heart patients. A coalpowered power plant also pumps in 170 lb of mercury. About 1/70th of a teaspoonful of mercury deposited in a 25 acre lake can make the entire fish population unsafe for consumption. Mercury also inflicts learning disabilities, brain damage, and neurological disorders. Such a power plant also releases 225 lb of arsenic, which is the root cause of cancer in one out of 100 people. It also emits 114 lb of lead, 4 lb of cadmium, and other toxic heavy metals, which accumulate in human and animal tissues causing severe health problems.4 The environmental concerns of coal are particularly significant in India since coal remains to be the largest source of energy, with 55% share in the total energy mix. India currently burns 550 MT of coal, which is estimated to go up to 2.1 billion tonnes (BT) by 2031. With 84.396 BT of proven recoverable reserves characterized by low calorific value, the environmental challenges are alarming. Apart from the impact of mining and related areas, the power sector’s heavy reliance upon coal, which is almost 73% of the total power generation, further compounds these concerns. It is estimated that in 2007, the total GHG emissions from electricity generation was 719.31 MT of CO2 equivalent of which 715.83 MT was emitted as CO2, 8.14 thousand tonnes as CH4, and 10.66 thousand tonnes as N2O.5 Since most of the power generations are based on coal in India, the

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majority of emissions must be from the coal. The distribution of emissions by fuel type is shown in Table 2. One of the major challenges of coal-based power plants is the disposal of ash, which requires a huge extent of land. Due to the enormous quantity of ash content in India’s coal, approximately 1 acre per MW of installed thermal capacity is required for ash disposal. A 500 MW thermal power plant releases 200 MT of SO2, 70 tonnes of NO2, and 500 tonnes of fly ash approximately every day. In India, nearly 90 MT of fly ash is generated per annum at present and is largely responsible for environmental pollution. In developed countries like Germany, 80% of fly ash generated is utilized, whereas in India only 3% is being consumed. If this trend continues, by 2014/15, 1000 km2 of land, equal to the size of Hong Kong, or 1 m2 per person would be required for ash disposal only.

HYDROCARBONS By quantum of usage and by the level of pollution caused, liquid hydrocarbons are only next to coal. Exploring, producing, refining, moving, and using them can harm the environment through air and water pollution. Petroleum products release the following emissions when they are burnt as fuel.6 Table 2

NCV and CO2 emission factors of different types of fuel use

Type of fuel

NCV (TJ/kilotonne)

CO2 EF (tonnes/TJ)

Coking coal

24.18

93.61

Non-coking coal

19.63

95.81

9.69

106.15

Lignite Diesel

43.0

74.1

Petrol

44.3

69.3

Kerosene

43.8

71.9

Fuel oil

40.4

77.4

Light distillates

43.0

74.1

CNG

48.0

56.1

LPG

47.3

63.1

Lubricants

40.2

73.3

ATF

44.1

71.5

ATF – aviation turbine fuel; CNG – compressed natural gas; LPG – liquefied petroleum gas; NCV – net calorific value; EF – emission factor Note TJ = 1012 J (1 J = 2.39 × 10–4 kcal)

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• Carbon dioxide CO2 is a GHG and a source of global warming. • Carbon monoxide CO combines with oxygen in atmosphere and forms CO2 and ozone. • Sulphur dioxide SO2 can cause acid rain, which is harmful to plants and animals living in water. It worsens or causes respiratory illnesses and heart diseases, particularly in children and elderly. • Oxides of nitrogen and volatile organic compounds NOx and volatile organic compounds (VOCs) contribute to ground-level ozone, which irritates and damages the lungs. Particulate matter (PM), along with ozone, causes health hazards like asthma, chronic bronchitis, and lung cancer. When certain varieties of petroleum are burnt, they emit lead and various other toxic materials like benzene, formaldehyde, acetaldehyde, and 1,3butadiene. Lead can cause severe health hazards, particularly among children. According to the INCCA, the total emissions from solid fuel manufacturing and petroleum refining in 2007 in India was 33.85 MT of CO2 equivalent, and out of this, 97% of the emissions were from solid fuel manufacturing.7 The transport sector is the major consumer of hydrocarbons and emissions from this sector include all GHG emissions from road transport, railways, aviation, and navigation. Due to rapid economic growth in India over the last two decades, the demand for all transport services, particularly road transport and aviation, has increased manifold with a share of 4.5% in India’s GDP. The total number of registered vehicles in the country increased from 5.4 million in 1981 to 99.6 million in 2007. Two wheelers and cars constitute nearly 88% of the total vehicles at the national level. Oxides of sulphur are generated mostly from burning and usage of transport fuels and hydrocarbons, which contain sulphur. Oxides of sulphur are more harmful per unit when compared to oxides of carbon produced by burning carbonaceous matter such as coal, lignite, wood, biomass, and agricultural waste. Dioxide and trioxide (SO2 and SO3) of sulphur are corrosive and injurious to health and can cause respiratory and dermatological problems. They become more dangerous when they react with atmosphere, thereby converting into sulphuric acid, which contaminates rain water and drinking water sources. The total commercial energy consumption in the transport sector in 2007 was estimated to be 1766.6 PJ, which includes an array

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of fuels, such as diesel, petrol, coal, aviation turbine fuel (ATF), kerosene, light diesel oil (LDO), furnace oil (FO), compressed natural gas (CNG), and liquefied petroleum gas (LPG). Diesel comprises 65% of the total energy used in the road transport sector, followed by petrol (24%) and ATF (7%), respectively. The rest (4%) consists of coal, LDO, FO, CNG, and LPG. Consequently, it is estimated that the transport sector emitted 142.04 MT of CO2 equivalent in 2007 in India, of which 138.86 MT were emitted as CO2, 0.023 MT as CH4, and 0.009 MT as N2O. Out of this, the road transport sector emitted 123.55 MT of CO2 equivalents, which is 87% of the total emissions from the transport sector. In terms of specific gases, the road transport sector emitted 121.21 MT of CO2, 0.023 MT of CH4, and 0.006 MT of N2O. The aviation sector emitted 10.21 MT of CO2 equivalent in 2007 and is the second largest emitter in the transport sector. Almost the entire emissions from the aviation sector were as CO2 (10.12 MT). The railways emissions are mostly driven by diesel, with a very small use of other liquid fuels. The use of coal in railways has become minimal. The railways emitted 6.84 MT of CO2 equivalent in 2007, and again more than 90% of the emissions were in the form of CO2. The navigation sector emitted 1.43 MT of CO2 equivalent and out of this, 1.41 MT were emitted as CO2 (Figure 2).

Natural Oil Seeps and Spills During Transportation Large quantities of oil naturally seep into the ocean floor. Such spills are spread out over large areas. Oil spills also occur from ships during

Figure 2 Distribution of CO2 equivalent emissions from various modes of transport within the transport sector Source INCCA (Indian Network for Climate Change Assessment). 2010. India: greenhouse gas emissions 2007—executive summary. Details available at

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transportation, which are also the major sources of oil pollution in ocean water.

Oil Spills due to Exploration Disasters With increased energy needs supplemented by technological advancements, the oil and gas industry has begun to move offshore, beginning with shallow water and eventually into deep water. However, drilling in deep water brings new risks and poses huge challenges to the safety of human life, living species as well as the environment. The Macondo disaster in the Gulf of Mexico and the Montana blowout in Australia demonstrated the detrimental impact of oil spills on the environment. In the Macondo blowout, which occurred on 20 April 2010 at 5000 feet of water in the Northern Gulf of Mexico offshore to the coast of Louisiana, USA, an uncontrolled flower of water, oil mud, oil, gas, and other materials came out of the drilling riser followed by a huge fire. The fire continued unabated for about two days fuelled by hydrocarbons coming from the Macondo well. The hydrocarbons reaching the surface ignited the oil drilling rig, Deepwater Horizon. Oil, gas, and other reservoir fluids escaped from the collapsed and fractured marine riser and drill pipe strewn across the sea floor into the Gulf of Mexico for about 83 days. This dispersed oil and other toxic fluids were transported by strong surface and sub-sea currents to many parts of the Gulf of Mexico. The hydrocarbons reaching the surface were swept by the same currents in and around adjacent wetlands and beaches. Similarly, in the Montana offshore blowout that occurred in Australia on 21 August 2009, oil and gas travelled a distance of over 4 km from the reservoir beneath the seabed. For a period of over 10 weeks, oil and gas continued to flow unabated into the Temor Sea, approximately 250 km off the north-west coast of Australia, affecting 90 000 km2 with weathered oils and polluting marine and shoreline ecosystems. While the impacts of these disasters might be estimated in terms of human and material losses, the innumerable damages to the environment appear to be beyond the human capacity to assess. Since India is in a nascent stage of drilling, an average of 100 offshore wells annually, in addition to the onshore drilling, we need to learn from the above-mentioned incidents and take appropriate safety measures to prevent such catastrophes.

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Environmental Effects of Natural Gas While natural gas is relatively a cleaner form of energy, it is imbued with several risks that have adverse impact on environment and safety during its exploration, production, transportation, and use. Exploration of natural gas is undertaken in relatively fertile lands, particularly in India. The need to lay pipelines to transport gas from wells requires clearing of large tracks of land. Exploration of natural gas also results in the production of large quantities of contaminated water. Unless proper safeguard measures are undertaken, such water has the potential to pollute land and potable water. Approximately, 53 kg of CO2 is released per million British thermal units of natural gas. Moreover, natural gas is mostly made up of CH4, which is one of the most potent GHG. Some quantity of CH4 leaks into the air from storage tanks, pipelines, and processing plants.8 While natural gas is mainly made up of CH4, unprocessed gas from a well may contain many other compounds, including H2S, which is a highly toxic gas. Natural gas with high concentrations of H2S is usually a cause of flaring that produce CO2, CO, SO2, NOx, and many other compounds depending on the chemical composition of the natural gas and how well the gas burns in the flare. Out of 38 trillion cubic feet (tcf) of proven natural gas reserves, India has been able to produce only 1.4 tcf. As natural gas is expected to be a dominant source of energy mix in the coming years, we need to take these environmental impacts into consideration during exploration and use of this source. The total CH4 emissions in 2007 were estimated as 4.27 MT from the energy sector. The increased share of natural gas in the coming years will contribute to more emissions. Since CH4 is a potent GHG, appropriate steps are needed to contain its environmental impact.9

RESIDENTIAL SECTOR Energy consumed in the residential sector is primarily for cooking, lighting, heating, and household appliances. In the commercial sector, key activities include lighting, cooking, space heating/cooling, pumping, running of equipment and appliances. Sources of energy for this sector are grid-based electricity, LPG, kerosene, diesel, charcoal,

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and fuelwood. The commercial and institutional sector also sees extensive use of captive power generation across the country due to frequent power shortages during various seasons. These power generation units generally run on diesel. In the urban sector, the important sources of energy are kerosene (10%), firewood and chips (22%), and LPG (57%). Usage of LPG as the primary source of cooking fuel in urban India was 48% more than that by rural households. Biomass fuels such as fuelwood, crop residue, and animal dung continue to be the dominant fuel used by rural households. In 2007, the residential sector emitted 137.84 MT of CO2 equivalent, of which 69.43 MT was in the form of CO2 emission, mainly from fossil fuels. CH4 and N2O emissions were 2.72 MT and 0.036 MT, respectively. CH4 emissions are largely due to biomass consumption in the residential sector.10

FUGITIVE EMISSIONS Fugitive emissions are not emitted through an intentional release from stack or vent. Fossil fuels such as coal or natural gas, when extracted, processed or transported, emit significant amount of CH4 into the atmosphere. The major share of emissions from these two sources consists only of CH4. Out of the total fugitive emissions of 31.69 MT of CO2 equivalent in 2007, the energy sector constitutes 97.8%. CH4 emission from oil and natural gas industries occurs due to leakage, evaporation, and accidental releases from oil and gas industry. Emissions from venting and flaring activities are managed as part of normal operations at field processing facilities and oil refineries.11

NUCLEAR ENERGY Though nuclear power is considered extremely clean, there are many unanswered questions relating to the whole life cycles of deployment, dismantling, and neutralization of nuclear plant sites.

Radioactive Waste Radioactive wastes can remain radioactive and pose a serious challenge to environment and human health for thousands of years. Radioactive wastes are classified into low and high levels. Low-level

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wastes occur at uranium mill tailings, whereas spent reactor fuel or parts inside a nuclear reactor produce high-level radioactive wastes. Uranium mill tailings contain a radioactive element that decays to produce radon, a radioactive gas. Unless adequate safeguards are taken to cover these tailings, radon can escape into atmosphere causing serious damage to the environment. Other types of low-level radioactive wastes include tools, protective clothing, wiping cloths, and other disposable items that get contaminated with small amounts of radioactive dust at nuclear fuel processing facilities and power plants. The radioactivity of nuclear wastes decreases with passage of time through a process called radioactive decay. Half-life is the time required to decrease the radioactivity of a material to one-half of the original level. A radioactive waste has to be stored till it attains half-life. Any irregularities at such storage facilities can cause serious health and environmental hazards.

Spent Fuels Since spent reactor fuel assemblies are highly radioactive, they must be initially stored either in specially designed pools resembling large swimming pools for cooling the fuel or in dry storage containers built with special outdoor concrete or steel containers. Any lacuna in such storage can cause serious damages. Nuclear plants also use large quantities of water for steam production and cooling. Heavy metals and salts can get discharged in this water. When such used water is discharged from storage tanks and power plants, it can adversely affect water quality and aquatic life. Radiation exposure is a very serious pollution. Leakages and water pollution are real threats looming large in the wake of the Three Mile Island accident in the USA (1979), the Chernobyl disaster in Ukraine (1986), and the Fukushima Daichi meltdown in Japan (2011). The nuclear accident in Japan consequent to a tsunami and earthquake has undoubtedly put a serious question mark over the entire issue of nuclear power. There are many unknown elements in the utilization process, which obstruct the development and deployment of nuclear energy on a large scale. Nuclear power plants currently provide approximately 2% of India’s electricity. As India is embarking on a large-scale nuclear power development programme following the signing of a nuclear

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treaty with the USA, it has to build more than adequate safeguards and monitoring mechanisms to address the lurking environmental problem and secure society from the imminent dangers. Processing, transport, and storage of nuclear waste pose a severe challenge, particularly when such plants are located in geophysically sensitive zones. Even mining and processing of radioactive ore poses huge environment hazards. There are many incidents where tailing dams have breached, polluting drinking water sources in many parts of the world. Upgrade of safety standards at various stages such as exploration, mining, beneficiation, transportation, and handling is very important to safeguard the public as well as livestock and wildlife from the danger of radiation. The difficulty in bringing the Fukushima nuclear crisis, which was precipitated by a series of accidents and failures, under control, even by one of the most advanced industrial nations with several decades of experience in handing nuclear issues, and habituated by a scant population, exposes the appalling challenges ahead in this arena. Besides safety and environmental hazards, the psychological stigmas attached to these issues are far more challenging.

HYDROPOWER Although hydropower appears to be the cleanest energy on the face of it, it is also prone to the danger of causing eco-imbalance, river course alteration, threat to specific fauna and flora, silting as well as degradation of water quality. The location of large hydropower dams in geophysically sensitive zones such as the sub-Himalayan terrain is prone to even physical danger to the downstream population. Large hydropower projects are known to affect the geophysical balance in the local area (Koyna Dam) and groundwater table.

GEOTHERMAL ENERGY Geothermal energy uses thermal activity in the bowels of the earth at shallow depths of easy reach. It is considered a clean source of energy although the potential in India is confined to only a few parts of the Himalayan region. However, the recent controversy related to geothermal projects in Germany, where it was suspected to have caused an imbalance in inherent seismic activity resulting in

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localized tremors in the region, has raised several questions on the usage of this potential energy resource. The mantle’s thermal activity at shallow depth is believed to be very sensitive to any disturbance, which is likely to cause imbalance. A detailed study of the regional and local geophysical sensitivity should be undertaken before any such projects are cleared for commercialization.

URBAN WASTE Urbanization is a continuous and irreversible process. Increased urbanization causes increased quantity of municipal waste. If this is not properly managed and disposed of, landfills can generate harmful methane gas. This apart, unmanaged municipal waste and landfills can occupy large urban places and become breeding grounds for disease-causing organisms. The processing of urban waste to generate energy, liquid fuels, and other useful products has to be promoted to remediate this ever-growing problem.

SOLAR ENERGY While solar energy has no adverse impact on the environment, some toxic materials, chemicals, solvents, and alcohols are required in manufacturing photovoltaic cells. The waste material from this process can have adverse impact on the environment. Besides, solar beams emanating from large solar thermal power plants can kill birds and insects altering ecosystems. Solar plants are generally erected in large desert areas with arid water conditions. Concentrating solar systems may require water for regular cleaning of concentrators and receivers and turbine generators. Such a requirement would adversely affect the scant water tables in these arid zones. Since India is embarking on a huge solar power generation programme in the coming years, it is important to keep these factors in mind so that the environmental impacts can be either minimized or eliminated.

BIOENERGY Bioenergy appears to be a clean energy; however, it is produced from plants that absorb CO2. Although it is renewable, it requires tremendous amount of energy to grow crops, make fertilizers and

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pesticides, and process plants into fuel. There are questions whether more energy is produced from ethanol than is used for growing and processing plants. Burning of ethanol also releases CO2. Biofuel production also involves use of fossil fuels. Biomass also emits CO2 and sulphur when burnt, although it causes less pollution than fossil fuels. Burning wood, municipal solid waste or garbage results into emission of harmful pollutants like CO. The ash contains harmful metals like lead and cadmium. During mixing of ethanol with gasoline, evaporative emissions are released from dispensing equipment and fuel tanks, which contribute to ozone problems and smog. Biodiesel releases more NOx than traditional diesel.

WIND ENERGY Wind is a clean energy source. It produces no air or water pollution since no fuel is burnt to generate electricity. The most serious environmental impact from wind energy may be its effect on bird and bat mortality. However, it is interesting to note that wind turbine design has changed dramatically in the last couple of decades to reduce this impact.

DATA COLLECTION OF EMISSIONS AND CLIMATE CHANGE ASSESSMENT Consequent to the adoption of the United Nations Framework Convention on Climate Change (UNFCCC), the Intergovernmental Panel on Climate Change (IPCC) set the ground for collection of data and assessment of climate change in India through publication of an update on climate change in 1992. Earlier, the India Meteorological Department (IMD), the Indian Institute of Tropical Meteorology (IITM), and some premier institutes such as the Indian Institute of Science (IISc) and the Indian Space Research Organization (ISRO) and its associated institutions were providing data on climate change. Although information on climate change was consolidated for the preparation of India’s report of the Asian Development Bank’s study on climate change for the first time, the study was limited to the compilation of literature and certain studies on the impacts of climate change on agriculture, water, and forests besides rise of sea levels.

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The Asia Least-cost Greenhouse Gas Abatement Strategy (ALGAS) developed by the Asian Development Bank was yet another important assessment on GHGs at the 1990 level. In 2004, for the first time, a well-coordinated and dedicated effort was made to assess GHGs of anthropogenic origin from sectors such as energy, agriculture, industry, land use, land use change and forestry, and waste. Efforts were also made to assess the climate change impacts and vulnerability of key sectors of economy in India’s Initial National Communication to the UNFCCC. While dedicated efforts were made to assess GHGs from various sectors, a serious and long-standing initiative was taken by the Government of India with the setting up of the INCCA during a workshop organized by the MoEF on 14 October 2009. INCCA, a network of 127 research institutions, has been conceptualized to assess climate change through scientific research. It was also decided to make climate change assessments once in every two years to develop decision support systems and to build capacity towards management of climate change.12 Consequently, India became the first developing country to publish a detailed report on GHG emissions titled Greenhouse Gas Emissions 2007. While this assessment is an important event in the evolution of climate change, advanced methods of estimation are required to make accurate assessments.

ACTION PLAN ON CLIMATE CHANGE To address issues relating to environment and climate change, the Government of India formulated the National Action Plan on Climate Change (NAPCC) on 30 June 2008. As part of this action plan, eight national missions comprising inter-sectoral groups involving relevant ministries, private players, and local governments have been announced. The Prime Minister’s Council on Climate Change will be the overall in charge of the implementation of this national plan.13 The NAPCC aims at forming a sustainable development strategy sensitive to climate change; enhancing ecological sustainability through public–private partnerships; introducing appropriate technologies for both adaptation and mitigation of GHG emissions; evolving appropriate implementation mechanism; encouraging research, development, sharing, and transfer of technologies; and ensuring a

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global intellectual property rights regime that facilitates technology transfer to developing countries under the UNFCCC.

National Solar Mission The National Solar Mission is aimed at significantly increasing the share of solar energy in the total energy mix.

National Mission for Enhanced Energy Efficiency Under this mission, several schemes and programmes have been initiated to enhance energy efficiency in the country. These mechanisms are highlighted in Chapter 5. National Mission on Sustainable Habitat This mission is aimed at (1) developing an energy conservation building code for addressing the design of new and large commercial buildings to optimize their energy demand and (2) initiate steps for recycling of material and urban waste management to ensure ecologically sustainable economic development. National Water Mission The objective of this mission is to develop integrated water resource management to conserve water, minimize wastage, and recycle waste water and to evolve new regulatory structures combined with appropriate entitlement and pricing. National Mission for Sustaining the Himalayan Ecosystem This mission was launched to initiate measures for sustaining and safeguarding the Himalayan glacier and mountain ecosystem. The Himalayan ecosystem has 51 million people engaged in hill agriculture. The vulnerability of these people is expected to increase on account of climate change. National Mission for Green India This mission is aimed at enhancing ecosystem services, including carbon sinks. As part of this objective, the prime minister has already announced a Green India Campaign for the afforestation of 6 million hectares to increase the forest and tree cover to 33% from the current 23%. Projects under the Green India Campaign will be taken up on degraded forest land. An initial corpus of over `60 000 million

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has been earmarked for the programme through the Compensatory Afforestation Management and Planning Authority (CAMPA). National Mission for Sustainable Agriculture The objective of this mission is to develop new varieties of crops with a special focus on thermal resistant crops. This mission is also aimed at developing alternative cropping pattern that can withstand extreme weather conditions, long dry spells, flooding, and variable moisture availability. This will be achieved through the convergence and integration of traditional knowledge and practice systems, information technology, geospatial technologies, and biotechnologies. National Mission on Strategic Knowledge on Climate Change The mission aims to identify the challenges of and responses to climate change. High quality research into various aspects of climate change will be undertaken through this mission, particularly socio-economic impacts of climate change such as implications on health, demography, migration patterns, and livelihood of coastal communities. As is evident from the above discussion, any activity relating to energy production, energy extraction, and processing and transportation will have impacts on environment directly or indirectly in different forms and at different levels. As the economy grows, energy consumption also increases leading to multiplication of its impact on the environment. Harmful gases are released into the atmosphere causing a hazard to human health and well-being. Besides, there are also pernicious effects on geography, topography, oceanography, cultures, habitation, and forest cover. While the ultimate objective of energy security is to ensure the well-being of humankind, in the process of attaining that, we should not inflict damage on social security. These anthropogenic activities will have long-lasting adverse implications on not only the present generation but also the future generations, which may lead to existential threat to human civilization. From an environmental perspective, it is becoming increasingly clear that humanity’s current energy habits must be

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changed to contain these health hazards and environmental disasters. There is no single solution to this problem. In fact, the solution lies in a holistic approach with a package of several initiatives, incentives and disincentives, and regulations. While it is noteworthy that India was the first developing country to publish a detailed report on GHG emissions, there is a great need to adopt advanced measures of estimation. Although the NAPCC is an important initiative, the challenges in India lie in the implementation of all these programmes. Any implementation mechanism will remain ineffective unless the stakeholders are fully aware of the objectives. In view of this, the paramount priority of the government should be to create highest degree of awareness about the perils of environmental degradation; to promote change of energy habits; and to stipulate industry to take local measures to compensate for the adverse impacts of the energy systems they operate.

NOTES 1. INCCA (Indian Network for Climate Change Assessment). 2010. India: greenhouse gas emissions 2007—executive summary. Details available at 2. Energy Kids—US Energy Information Administration: coal; details available at 3. Environmental impacts of coal, details available at 4. Environmental impacts of coal, details available at 5. INCCA (Indian Network for Climate Change Assessment). 2010. India: greenhouse gas emissions 2007—executive summary. Details available at 6. Energy Kids—US Energy Information Administration, details available at

7. Energy Kids—US Energy Information Administration, details available at

8. Energy Kids—US Energy Information Administration: natural gas, details available at 9. EIA (Energy Information Administration). 2011. Country analysis brief: India. Details available at

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10. INCCA (Indian Network for Climate Change Assessment). 2010. India: greenhouse gas emissions 2007—executive summary. Details available at 11. INCCA (Indian Network for Climate Change Assessment). 2010. India: greenhouse gas emissions 2007—executive summary. Details available at 12. INCCA (Indian Network for Climate Change Assessment). 2010. India: greenhouse gas emissions 2007—executive summary. Details available at 13. National Action Plan on Climate Change (NAPCC), Government of India, Prime Minister’s Council on Climate Change.

7 Water for Energy Water and energy have been mutually dependent since time immemorial. These are complementary to each other. Energy is required to lift water, and water is essential for exploring resources and production of energy. In early agrarian societies, manual labour and oxen provided the means to pump water from various sources. As technology developed, energy has become a crucial input for pumping water for various needs. Subsequently, water has emerged as an essential element not only in generation of energy but also in exploration, processing, transportation, and storage of various sources of energy. Although more than 70% of our planet is covered by water, only less than 3% is fresh water. Out of this, 2.5% is frozen in glaciers and is not available, and hence only 0.5% is available in aquifers, lakes, rivers or wetlands.1 Linkages between energy and water systems have grown more complex and interdependent in modern society and economy. Emerging economies like India, which are already experiencing major water conflicts, is more prone to these intricate interdependency of water and energy. These new realities compel us to find appropriate solutions to these issues. So far, no proper water footprints (the amount of water consumed to produce one unit of energy) has been developed in several energy processes in the Indian context. The following illustration grossly indicates how important water is at every stage of energy processing and production of various sources of energy. Water requirements projected by the World Energy Council (WEC) are taken as a broad reference to highlight the importance of water in the Indian context.2

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COAL AND LIGNITE

Traditional Coal Coal is the largest source of energy with 55% share in the total energy mix. Mining and refining coal, which includes washing and gasification, requires water at various stages. According to the estimates of the WEC, approximately 0.164 m3 of water is needed per GJ as shown in Annexure V for production of coal.

Clean Coal Technologies—IGCC The Government of India is promoting clean coal technologies such as integrated gasification combined cycle (IGCC), coal washeries, coal bed methane, and underground coal gasification. These require substantial amounts of water.

OIL SUPPLY India imports 80% of its crude oil mainly from Gulf countries. It produces 34 million tonnes (MT) of oil domestically. The majority of India’s roughly 5.4 billion barrels are still to be explored. The production of oil requires water at various stages in the process. As is shown in Annexure V, for drilling, flooding, and treating crude oil, approximately 1.058 m³ of water is needed per GJ, with the various processes consuming different amounts of water. Besides the huge oil potential to tap, India is also contemplating exploring non-conventional oils; the requirement of water for these purposes will be much higher.3 According to the estimates of the WEC,4 the share of oil in the global primary production will decrease from 34% to 22% by 2050. However, the corresponding water consumption will rise from the present level of 10%–18%. As mentioned above, India is also compelled to explore nonconventional oil. It is estimated that exploration and processing of these oils require huge amount of water.

NATURAL GAS SUPPLY AND GAS HYDRATES The actual water required to extract natural gas (conventional) is low compared to other forms of energy. It is estimated that approximately

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157

0.109 m³ of water is needed per GJ. Overall, the production of natural gas accounts for less than 0.5% of the total water consumption in energy production. Since India is pioneering in gas hydrates technology, it needs to estimate the additional water requirements in this new technology. However, in the advent of shale gas as a major source of energy, the water requirement to extract this has increased manifold through new technologies of horizontal drilling or hydraulic fracturing. Although the exact quantity of water requirement in this technology is yet to be assessed, it has been estimated that millions of litres of water are required to break apart the rock and release gas from shale beds.5

Combined Cycle Gas Turbine Plant In a combined cycle gas turbine (CCGT) plant, a gas turbine generates electricity and the waste heat is used to make steam, generating additional electricity via a steam turbine; this last step enhances the efficiency of electricity generation. CCGT plants are usually powered by natural gas, although fuel oil, synthetic gas or even biofuels can be used. The majority of water consumed in a CCGT plant is used for cooling. It has been estimated that generation of electricity by burning oil or natural gas requires approximately the same amount of water, especially for cooling, as coal-fired IGCC plants because the thermal efficiency of the two is comparable.

Natural Gas Combined Cycle Plants A natural gas combined cycle (NGCC) plant works in a similar manner as a CCGT plant. The majority of water used in an NGCC plant is for cooling. No water is consumed for slurrying or desulphurization. In North America and Europe, most new gas power plants are of this type. Water consumption compared with all other fossil fuel-fired power plants is the lowest.

NUCLEAR POWER SUPPLY Nuclear power contributes to about 2.4% of electricity generated in India. At present, India has six nuclear power plants with a total capacity of 4120 MWe. These stations together generated 14 716 million units (MUs) of electricity in 2008/09. Another five units, with

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a combined capacity of 2660 MWe, are expected to be operational during the Eleventh Five-year Plan period. Since India’s nuclear power programme is predominantly uranium based, mining, milling as well as the conversion and processing of uranium require less water per unit energy than other energy sources. It is estimated that approximately 0.086 m³ of water is needed per GJ. Overall, the production of uranium accounts for less than 0.2% of total water consumption in energy production (Annexure V). However, huge quantity of water is required in electricity generation. The amount of water required in electricity generation depends on the cooling technology. Nuclear power plants require more cooling water per MW than fossil-fueled power stations since steam in nuclear power stations is designed to operate at low temperatures and pressures as can be seen from Table 1. Table 1

Cooling water withdrawal and consumption (evaporation to the atmosphere)

Plant and cooling system type

Water withdrawal (L/MWh)

Typical water consumption (L/MWh)

Fossil/biomass/waste-fuelled steam, once-through cooling

75 708–189 270

~1 136

Fossil/biomass/waste-fuelled steam, pond cooling

1 136–2 271

1 136–1 817

Fossil/biomass/waste-fuelled steam, cooling towers

1 893–2 271

~1 817

Nuclear steam, once-through cooling

94 635–227 124

~1514

Nuclear steam, pond cooling

1 893–4 164

1 514–2 725

Nuclear steam, cooling towers

3 028–4 164

Natural gas/oil combined cycle, once-through cooling

28 391–75 708

~2 725 ~379

Natural gas/oil combined cycle, cooling towers

~871

~681

Natural gas/oil combined cycle, dry cooling

~0

~0

Coal/petroleum residuum-fuelled combined cycle, cooling towers

~1*

~757

* Includes gasification process water Source EPRI (Electric Power Research Institute). 2002. Water and Sustainability (Volume 3): US water consumption for power production—the next half century. Palo Alto, California: EPRI

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Assuming that a power station ran 24 h a day and based on the lower end of the estimates in Table 1, the annual usage and consumption per MW are given in Tables 2, 3, and 4. From Tables 2, 3, and 4, it can be concluded that depending on the cooling technology utilized, the water requirement for a nuclear power station can vary between 20% and 83% more than other power stations.

HYDROPOWER SUPPLY Hydropower harnesses the power of water by running water through turbines and discharging it unpolluted in the same form and quantity. Therefore, the used water is not lost and hydropower is not a net consumer of water by definition. Concerns over evaporation rates from specific reservoirs have recently been expressed. While evaporation rates may be important in some cases, it is essential to consider the following.6 • Measures should be taken so that evaporated water is not consumed but re-enters the hydrological cycle as precipitation. • Evaporation is highest in arid areas, where reservoirs often serve as storage to provide water, which would otherwise not be available. Table 2

Once through

Plant and colling system type Water withdrawal (Ml/MW)

Consumption (Ml/MW)

Fossil/biomass/waste

663

10

Nuclear

829

13

Ml – megalitre; MW – megawatt

Table 3

Pond cooling

Plant and colling system type Water withdrawal (Ml/MW)

Consumption (Ml/MW)

Fossil/biomass/waste

10

10

Nuclear

17

13

Ml – megalitre; MW – megawatt

Table 4 Tower cooling Plant and colling system type Water withdrawal (Ml/MW)

Consumption (Ml/MW)

Fossil/biomass/waste

17

16

Nuclear

27

24

Ml – megalitre; MW – megawatt

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• Consideration or calculation of evaporation rates with regard to hydropower is problematic and can rarely be attributed to hydropower alone but to multiple uses (power, flood control, irrigation, water storage, recreation, and navigation). • The climate which influences evaporation rates varies from and due to great regional differences, and because of insufficient research in this area, a global figure for water evaporation from reservoirs cannot be extrapolated from individual data. To date, most of the research on evaporation rates from hydropower comes from the USA. Current findings vary from 0.04 m3/MWh to 210 m3/MWh, with an expected median between 2.6 m3/MWh and 5.4 m3/MWh. If the size of the power plant is considered, smaller plants usually face more evaporation per unit of energy generated than larger plants. India is endowed with a vast and viable hydro potential for power generation, of which only 23% has been rendered operational so far. Forty-six hydro projects with an aggregate capacity of 13 675 MW are under construction in the country. Water requirement in this arena has to be estimated properly. Thermoelectric power plants, independent of fuel type, need cooling and process water. While the amount of water required for processing is rather minor, cooling water requirements are higher, although it depends on the cooling system used. The water used is either wasted or recovered and returned to its source. Cooling systems are classified into once-through and recirculating systems; the latter can be further classified into wet cooling systems, such as cooling ponds and cooling towers, and dry (or air) cooling systems. Of the existing thermoelectric power plants in the USA, about 43% use a once-through cooling water system. The majority of these plants were built before 1969, while the majority of cooling systems installed after 1970 or later, use recirculating cooling systems. Installing wet recirculating cooling systems is approximately 40% more expensive than once-through cooling systems, while dry cooling systems are three to four times more expensive than wet recirculating systems (NETL 2009). Once-through cooling systems return almost all the freshwater drawn back to its source, with only a small amount of water, approximately 1%, lost through evaporation or leaks in the system. The water discharged as part of the process is either

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returned to its original source or sent to a water treatment facility. In recirculating cooling systems, less water is drawn from the source, but 70%–90% of the water is lost through evaporation. While a oncethrough cooling system draws much more water than a recirculating system, a recirculating cooling system actually consumes more than 10 times the amount of water that a once-through system does. There are no proper estimates available in this regard in the Indian context.

RENEWABLE ENERGY Extraction and processing of various sources of renewable energy require substantial quantities of water. Although India has been able to add significant capacity addition in recent years, it still has a large untapped potential of renewable energy sources. Exploration of these sources of energy requires huge quantities of water in the years to come.

Biomass Gasification A biomass gas power plant requires a large cooling water system to condense steam produced in the boiler and drive turbines to produce electricity. There are two types of cooling systems—closedcycle and once-through systems. Closed-cycle cooling systems require continuous addition of small amounts of additional water to replace water lost to evaporation. Water consumption of these systems can range from 35 L to 55 L for each MW of electricity produced. Oncethrough cooling systems consume largest quantities of water. They require 1500–2600 L of water per minute for each MW of power.7

Biofuels So far there have been three main types of biofuel sources: wood fuel, agro fuel, and municipal by-products. Wood fuel is derived from trees and shrubs. To produce the necessary amounts of agro fuel, agriculture requires the input of freshwater for crops. The amount of irrigation water used to grow agro fuel varies significantly from one region to another and is highly dependent on climatic conditions, the agricultural system, as well as the processing technology used.

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Wind Turbines Wind is one of the most viable renewable resources for power generation in India. With 8757.0 MW of installed capacity, India ranks fourth in the world after Germany, USA, and Spain. Wind energy utilizes the kinetic energy in air. Wind farms require only a negligible amount of water, mostly for cleaning, to produce electricity.

Solar Power India, being an eminently tropical country, has a huge potential for solar energy. The government has come up with an initiative to create 20 GW of solar energy by 2020 under the Jawaharlal Nehru National Solar Mission. In the backdrop of this ambitious agenda, the question of the amount of water needed to produce solar energy is an important one. Solar energy is generally produced in two different ways. 1. Solar power generation through photovoltaic cells Photovoltaic (PV) cells are used in rather limited situations for powering small appliances. While no water is needed to produce electricity from PV cells, minor amounts are used in their manufacture and periodic cleaning. 2. Solar energy generation through concentrating solar power thermal steam plants Concentrating solar power (CSP) thermal consumes more water for cooling and washing mirrors. CSP uses long parabolic mirrors or Fresnel lenses to concentrate sun’s energy on black tubes carrying molten sodium or high temperature oil. These fluids are used in turn to produce steam to turn turbine to produce electricity. Without water source, CSP systems cannot be operated.8 Water consumption in CSP systems can be reduced through modifications in the cooling tower so that dry desert air can be used instead of water to cool. This, however, will greatly increase building costs since massive cooling towers are to be constructed. Moreover, relying on air to cool the mirrors can decrease the efficiency of the plant. These factors compel CSP systems to use water for cooling the mirrors. Since large solar plants can only be set up in desert and semiarid areas, the supply of water will be all the more challenging.9 The issues relate not only to the amount of water a proposed plant would use but also the source of that water—whether new wells would be drilled or an existing water source reallocated to the new use.

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TRANSPORTATION SECTOR Electricity, of course, is only a portion of our energy use. Fuel for heating and transportation also requires water. Hidden within each gallon of petrol pumped into cars is about 13 gallons of water. As energy is fundamental to economic growth and development, increased energy needs translate into enhanced consumption of water. Besides, as energy resources are stretched, more unconventional sources are becoming attractive; yet they require large amounts of water. This compels a paradigm shift on the linkages of water and energy. According to the National Renewable Energy Laboratory, Colorado Report dated December 2003, thermoelectric power plants make up 39% of all water withdrawals from rivers, lakes, ponds, and reservoirs in the USA.10 In view of such looming water dependence on energy, a detailed footprint of water requirement on energy is to be prepared in the Indian context. Ignoring this critical element will cause a serious dent in any strategy to uphold India’s energy security.

NOTES 1. UNESCO (United Nations Educational, Scientific, and Cultural Organization). 2003. Water for people, water for life—World Water Assessment Programme. Details available at 2. WEC (World Energy Council). 2010. Water requirements in the energy sector. In Water for Energy. London: WEC. Details available at 3. WEC (World Energy Council). 2010. Water requirements in the energy sector. In Water for Energy. London: WEC. Details available at 4. WEC (World Energy Council). 2010. Water requirements in the energy sector. In Water for Energy. London: WEC. Details available at 5. Shale gas. Details available at 6. WEC (World Energy Council). 2010. Water requirements in the energy sector. In Water for Energy. London: WEC. Details available at 7. Biomass energy operations: resource requirements and impact sources, details available at

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8. Gelt, J. 2008. Clean, green solar power falls short in achieving water efficiency. Arizona Water Resource 17(1). Details available at 9. Gelt, J. 2008. Clean, green solar power falls short in achieving water efficiency. Arizona Water Resource 17(1). Details available at 10. Torcellini, P., N., Long, and R., Judkoff. 2003. Consumptive Water Use for US Power Production. Colorado: National Renewable Energy Laboratory. Details available at

8 Energy Pricing Energy pricing plays a pivotal role in the strategy to achieve energy security. In an energy-deficient country like India, fixing the prices of energy in a way affordable to citizens from every strata of society is a huge challenge. The task of providing energy at a reasonable cost for fuel, cooking, heating, electricity, and transportation to approximately 400 million people who do not have access to commercial energy becomes very intricate. Energy pricing also plays a critical role in enhancing the energy efficiency of an economy since erroneous pricing mechanisms will not only affect the gross domestic product (GDP) of the country but also lead to excessive or irrational use of energy resources. Such price distortions will create an unfavourable market for investment, price monopoly, and black-marketeering of energy products, thereby exerting enormous pressure on energy resources and leading to energy insecurity. Rational energy prices are also necessary to ensure expanded energy supply. At present, the Indian consumer pays one of the highest tariffs in the world for energy supplies/services based on purchasing power parity. These prices are loaded with taxes and duties. The high prices are broadly due to (1) lack of domestic resources; (2) high dependence on imports, (3) inappropriate pricing mechanisms; (4) non-uniform taxation structures; (5) absence of domestic competition; (6) irrational subsidy regimes; (7) obsolete technologies; (8) variations in geographical conditions; and (9) transportation costs. The government is compelled to control prices due to import dynamics and volatile international prices of crude oil, which consequently lead to steep inflationary trends. Duties on petroleum

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products are a key source of government revenue, but such duties are not uniform across products. Moreover, differential state taxes and custom duties on crude and petroleum products infuse further distortions in energy pricing of this sector in India. In the coal sector, the monopoly of Coal India Limited (CIL), a public sector unit, still continues. Despite exponential growth in demand of coal, the volume of production is affected by other reasons, rather than environmental and geographical issues. Power, a secondary form of commercial energy, is either grossly overpriced (for the paying industrial, commercial, and large domestic consumers) or provided free of cost to certain category of consumers. Over 40% of the energy consumption is neither paid for, nor collected by the state utilities—this is besides the huge transmission losses. Hydro projects have been plagued with abnormal delays, cost over-runs, environmental issues, and other geopolitical skirmishes. Uranium fuel used in India’s nuclear plants costs at least three times the prevailing international prices due to lower grade scarce deposits. Wind power in India delivers only about 17% capacity factor, on an average. Non-commercial energy is considered practically free since opportunity costs of labour spent in collecting firewood or cow dung and preparing the same are rarely factored in. Although India is the fourth largest producer and distributor of wind energy in the world, the current losses of distribution utilities before accounting for state subsidy are approximately `700 000 million. India has yet to make strong forays into other forms of renewable energy resources. Expectation of a rational and coordinated pricing at this stage may be premature.1 However, we can no longer take refuge under these lacunae since the time is apt to develop transparent, rational, and coordinated pricing mechanisms for all forms of energy supplies/services. The questions that we need to ponder over are: Should the government intervene at all in the market and set prices and if so, to what extent? What are the factors that govern the pricing mechanism of energy? In a developing country like India, where a large population still does not have access to power, the government’s intervention is inevitable due to the dual challenges of (1) making suitable and minimal energy resources available to the section of society below the poverty line (BPL) and (2) providing affordable energy resources to the rest of the population. Besides, there is a need to promote the consumption of merit goods such as clean cooking fuels like natural

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gas, liquefied petroleum gas (LPG), and kerosene to replace usage of fuels such as firewood and cow dung, which inflict major health hazards. The government also has greater responsibility to safeguard the environment and reduce our carbon footprint. In addition to these domestic responsibilities, government’s intervention is also inevitable to insulate the domestic economy from the volatility of international energy prices, particularly petroleum and gas, since the Indian energy sector is predominantly import dependent. Besides, keeping domestic oil firms viable and in good financial health to provide an environment in which they can grow is also an important policy objective. But such intervention should be fair and transparent with well-defined mechanisms. The following factors need to be considered in developing any mechanism of energy pricing. Availability of a variety of resources If different resources are available, dependence on one particular resource will decrease, which will lead to a fall in its price. Different sources Breaking the monopoly of one particular source of supply can affect the price and lay a level-playing field for that service. For example, import of better quality coal at competitive prices will check the increase of prices of coal produced in India. Taxes and duties A major portion of the pricing of various energy resources include taxes and duties. If we can evolve a fair and uniform taxation policy for fuels that are complimentary to each other (say comparable calorific values), the pricing of energy will be favourably affected. Transport of resources If an energy resource needs to be transported to long distances for distribution/processing, the transport costs will add into the final price. Places nearer the refineries/processing plants will benefit, whereas far-off places will be at a disadvantage. For example, if compressed natural gas (CNG) needs to be transported through gas pipelines, a huge investment in the initial infrastructure will add a component to the final cost of gas, which has to be paid by the individual consumer. Calorific values Indian coal has low calorific value and high ash content. Imported coal is two to three times higher in calorific value than domestic coal. Hence, power plants based on imported coal

168

Energy Security and Economic Development in India

will not be competitive. In the steel sector, we need to import coal whatever the price, because we do not have adequate coking coal reserves. Processing of fuels The knowledge involved in processing the fuel will also influence the cost. For example, coal is washed to increase calorific value and reduce ash content. This step of processing fuel adds to the cost. At the same time, blending of petrol with butane and ethanol does not affect the calorific value but reduces the cost of petrol. Subsidies Under a controlled economy, various subsidies on petroleum, LPG, and kerosene increase the fiscal deficit and bring in budgetary constraints for the Government of India. Yet, removal of these subsidies will lead to the increased cost of living for the common man. A fine balance has to be maintained. Use of these subsidies for political mileage and undue favours in extending these concessions lead to inefficient use and depletion of energy resources. Price regulations In an open economy, the general public needs to be protected from day-to-day fluctuations in global prices of petroleum and other energy resources. This necessitates the need for setting up a price regulatory mechanism. Alternative sources of energy Dependence on fossil fuels, which are finite in quantity, needs to be reduced. Use of renewable energy resources will not only enhance the energy efficiency and bring down energy costs but also provide clean energies. For example, use of hybrid cars has contributed towards reduced consumption of petrol.

EVOLUTION OF PRICING MECHANISM FOR OIL AND PETROLEUM PRODUCTS It may be useful to briefly revisit the pricing policies/mechanisms for oil and petroleum products that have been followed in India since independence; this will enable us to learn from our experiences and also devise future energy pricing policies. Regulation of oil prices2 was first attempted in India when the valued stock account (VSA) procedure was agreed upon both by the government and Burmah Shell in 1948. In the 1960s, a few committees—the Damle Committee

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169

1961, Talukdar Committee 1965, and Shantilal Shah Committee 1969— were appointed by the government to recommend pricing modalities for petroleum products. These committees recommended prices to be determined on principles of import parity. Ceiling on selling prices was recommended for various petroleum products. Subsequently, in 1974, the government appointed an Oil Prices Committee (OPC) headed by K S Krishnaswamy. This committee recommended discontinuation of the import parity basis and a shift over to determining the prices of major petroleum products on a “cost plus basis”, which came to be commonly known as the administered pricing mechanism (APM). The regime recommended by OPC was amended by the Oil Cost Review Committee (OCRC) 1984 headed by J S Iyer, wherein the basis of compensating return was amended from a flat rate on the capital employed to 12% post tax return on net worth and weighted cost of borrowings. The objective of the government was to shield the Indian economy from the high and volatile oil prices generated by the first oil sleek in 1973/74. The main features3 of the APM are as follows. • Allowing national crude oil producing companies, namely, the Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL), to have operating cost plus 15% post tax return on capital employed for indigenous crude oil production. • Allowing oil refineries, pipelines, and marketing companies to have operating cost and return on capital employed. • Subsidizing consumer prices of certain products like kerosene for public distribution and domestic LPG. • Maintaining uniform prices of each administered petroleum product at all refinery locations by equalizing all costs like cost of crude oil, freight, and margins to oil companies. • Ensuring stable prices so that the domestic market is insulated from the volatility of prices in the international market. The above objectives were achieved through the operation of the Oil Pool Account, which was used to adjust the variation in various elements of costs. The government in January 1995 appointed a strategic planning group on restructuring of the oil industry (R Group) to make recommendations for restructuring the oil industry

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so that policy objectives and initiatives are met. The ‘R’ Group had recommended the gradual phasing out of APM and introduction of a free marketing mechanism due to the following reasons. • APM cannot generate the financial resources required to invest in upstream and downstream sectors. • Private capital as well as foreign direct investment would not be forthcoming in view of the inherent regulatory controls imposed by the government. • APM does not provide strong incentives for investments in technological upgrade or for cost minimization. • APM has not been completely successful in achieving the primary objective of ensuring a consumer-friendly and internationally competitive vibrant petroleum sector capable of a global presence to provide energy security for the country. • Since all costs are reimbursed, there is no incentive to make profitable investments. Therefore, cost plus formula leads to breeding inefficiencies. • The subsidies and cross subsidies have resulted in wide distortions in the consumer prices and do not reflect the economic cost of petroleum products. • It does not enable domestic oil companies to generate adequate financial resources for project development and capacity addition. Consequently, the government constituted an expert technical group in June 1996 comprising representatives from various ministries like the Ministry of Finance (Department of Economic Affairs), the Planning Commission, the Bureau of Industrial Costs and Prices (BICP) to examine the impact of dismantling the APM on various sectors at different levels of duty structure. The expert technical group advocated a phased movement to market-determined pricing mechanism (MDPM). Since April 1998, the government has undertaken the programme of dismantling the APM with a view to attract investment in the petroleum sector and improve efficiency. In April 2002, the APM was fully dismantled. Accordingly, the oil companies have made frequent revisions in the selling prices of petrol and diesel during 2002 and 2003, when the international prices were fairly stable. However,

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the years 2004 and 2005 witnessed a sharp and spiraling increase in international prices of crude oil and petroleum products. The Indian oil industry, which is heavily dependent on imports for crude procurement, reacted sharply to these fluctuations in international prices. In the aftermath of dismantling the APM, the period from 2004 to 2008 witnessed three distinct policy phases to address the price volatility.

Phase I Price band mechanism In July 2004, a price band mechanism was adopted giving limited freedom to oil-marketing companies (OMCs) to revise retail prices within a band of ±10% of the mean of the rolling average of the last 12 months and the last 3 months of international C&F prices. It was stipulated that in a situation where there is a hike in international prices, excise duties will be suitably adjusted. However, due to a sharp rise in oil prices and volatility in international oil markets, the price band mechanism was abandoned. Trade parity pricing In October 2005, the Rangarajan Committee recommended the formula of trade parity pricing (TPP) for petrol and diesel at the refinery level as well as in the retail sector. The integrated energy policy adopted the TPP. It is stipulated that the import parity price (IPP) is to be used for a product for which the country is a net importer and the export parity price (EPP) is to be used for a product for which it is a net exporter. As long as the country exports a particular product, EPP equals TPP. The TPP prices should serve as indicative ceilings within which the marketing companies would have flexibility to fix the actual retail prices of petrol and diesel. The committee recommended elimination of subsidy on LPG and restriction of kerosene subsidy to BPL families. The committee also made recommendations on restructuring of taxes and duties to eliminate or minimize price distortions. The retail prices in India are among the highest. They are more than that of the neighbouring countries and even exceeding the prices of some of the developed economies. Still Indian companies are incurring huge under-recoveries on the sale of their products, basically because of high taxes and duties levied on each of the four

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petroleum products—petrol, diesel, LPG, and kerosene—as can be seen in Table 1. While there is no state tax on LPG, 5% state tax is collected on sale of kerosene. The total tax in case of petrol is around 42% and in case of diesel, it is 20%.4 Table 2 depicts the level of average end use taxes collected on gasoline in some Organization for Economic Cooperation and Development (OECD) countries as compared to India. From Tables 1 and 2, it is evident that taxes on petroleum products are critical sources of revenue not only for developing countries like India but also for developed economies. Rationalization of taxes is key to evolving prudent pricing policies. Similarly, steps should be taken to improve the percentage of recovery of cost of kerosene and LPG to bring down the burden of under-recoveries of OMCs. Table 3 gives an idea of the level of under-recoveries reported by OMCs for the period April–September 2011. Table 1

Share of taxes in RSP effective 16 November 2011

Parameter

Diesel Price in `/L

Share in RSP (%)

Petrol Price in `/L

Share in RSP (%)

Total price before government levies

42.81

—

38.32

—

Less: under-recovery incurred by OMCs

10.17

—

0.01

—

Price component realized

32.6

80

38.33

58

Custom duty

0.84

—

0.74

—

Excise duty, including education cess, at the rate of 3%

2.06

—

14.78

—

Total central taxes

2.90

7

15.52

23

35.54

—

53.85

—

VAT (including VAT on dealer commission)

4.46

—

11.07

—

Total state taxes

4.46

11

11.07

17

Dealer commission

0.91

2

1.50

2

40.91

100

66.42

100

Price charged to customer: depot price

RSP per litre (rounded up)

OMC – oil-marketing company; RSP – retail selling price; VAT – value added tax

Energy Pricing

Table 2

173

Level of average end use taxes collected on gasoline

Country

Gasoline Price/litre ($)

Tax (%)

Diesel Price/litre ($)

Tax (%)

France

2.051

57.2

1.537

39.0

Germany

2.096

58.8

1.615

39.9

UK

2.124

59.7

1.837

49.7

Japan

1.866

43.8

1.606

31.2

Canada

1.217

30.0

1.245

23.2

USA

0.911

11.8

1.003

12.5

India

1.277

40.0

0.787

18.0

Source IEA (International Energy Agency). 2009. Petroleum prices, taxation, and subsidies in India. Details available at

Table 3 Level of under-recoveries reported by OMCs Product

Under-recovery ( million)

Diesel

377 190

PDS kerosene

133 610

Domestic LPG

138 200

Total

649 000

LPG – liquefied petroleum gas; PDS – public distribution system

The level of under-recoveries for the full financial year is projected to cross `1 300 000 million, which the OMCs would not be able to absorb; one-third of the reported under-recoveries is compensated by the upstream oil companies. The government switched over to TPP and rationalized taxes on crude oil, petrol, and diesel. But it could not rationalize subsidies. Even TPP was confined to the refinery level, and the retail prices of petrol, diesel, domestic LPG, and public distribution system (PDS) kerosene fixed by the government remained below their TPP levels. OMCs that were basically public sector undertakings (PSUs) kept selling these products below their TPP-based costs. The government devised a burden-sharing mechanism to meet the under-recoveries of OMCs. This mechanism involved both public sector oil companies (for example, ONGC, OIL, and Gas Authority of India Ltd [GAIL]), which extended hefty price discounts on their sale of crude oil to OMCs, and the government, which issued bonds every year. This system, over the years, became unsustainable as it lacked transparency and

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Energy Security and Economic Development in India

led to financial uncertainty and administrative delays. From June 2006, the international oil prices kept rising, but the government did not increase the retail prices of petrol and diesel till June 2008. As a result, the under-recoveries of public sector OMCs reached unsustainable levels in 2008. At that stage, the government appointed the Chaturvedi Committee to look into the financial conditions of the companies, review the concept of under-recoveries, and examine the available options for burden sharing by all stakeholders.

Phase II The Chaturvedi Committee recommended that application of price restraints will need a formula wherein refinery gate prices of petrol, diesel, domestic LPG, and PDS kerosene should be based on free on board (FOB) export prices (and not on TPP). The full price adjustments should be made within a period of 9 months for petrol and 24 months for diesel. Once these price adjustments are completed, the government should disengage from the process of pricing petroleum products and allow prices to be decided by a competitive process. This committee, while endorsing the recommendation of the Rangarajan Committee for restricting subsidies to BPL families, suggested that such subsidies should be disbursed through smart cards or cash transfers and not through the supply of products much below their market prices. The committee also recommended that the existing subsidy on LPG should be eliminated in a period of three years. The pricing mechanism recommended by the Chaturvedi Committee was primarily meant to address the financial challenges arising out of high and unsustainable level of under-recoveries of OMCs that were not permitted to pass the rise in oil prices on to the consumer. Once oil prices in the international market slumped in the second half of 2008, the magnitude of under-recovery burden came down significantly. The dramatic rise in the prices of crude oil to as high as $148 per barrel in the international market, followed by an equally steep fall in 2008, posed significant problems to the policy. The government’s efforts to insulate domestic consumers, at least to some extent, resulted in a huge fiscal burden and also caused financial problems for the public sector OMCs. Consequently, an expert group was set up by the Ministry of Petroleum and Natural Gas on 31 August 2009 to

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outline a feasible framework for pricing the four sensitive products over a wide range of international prices and also to meet the various objectives of the government. The expert group (Parikh Committee Report 2010) made the following recommendations.5 • Petrol prices should be market determined both at the refinery gate and at the retail level. • The price of diesel should also be market determined both at the refinery gate and at the retail level as the higher excise duty on petrol may lead to fuel inefficiency of diesel. • A market-determined pricing system for petrol and diesel can be sustained in the long run by providing a level-playing field and promoting competition among all players—public and private—in the oil and gas sector. Adequate regulatory oversight is critical to ensure effective competition. These recommendations were based on the study that in 2008/09, trucks accounted for 37% and buses 12% of total diesel consumption (Figure 1). Agriculture’s share was only 12% (for tractors, thrashers, tillers, harvesters, pump sets). The cost of diesel in agriculture would be accounted for by the government while fixing the minimum support price (MSP) of major crops. Therefore, any increase in the cost of diesel will be reflected in the price of these crops and will not adversely affect farmers. Higher diesel price would encourage fuel use efficiency as well as greater use of railways for freight movement. Railways consume around one-fourth of the diesel per net

Figure 1 Percentage share in total diesel consumption for 2008/09, by user Source MoPNG (Ministry of Petroleum and Natural Gas). 2010. Report of the expert group on a viable and sustainable system of pricing of petroleum products. New Delhi: MoPNG

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tonne kilometre consumed by trucks. The lower prices of diesel as compared to petrol have encouraged various transport companies in India to buy more and more diesel cars. This has not only resulted in shortages of diesel in some pockets but also enhanced air and sound pollution. • A transparent and effective distribution system for PDS kerosene and domestic LPG can be ensured through a UID/smart cards framework. Until it becomes operational, the expert group suggested the following interim measures. Since there are disparities in per capita allocation, PDS kerosene allocation across states should be rationalized. This will bring down all-India allocation by at least 20%. Further reduction in PDS kerosene allocation can be done on the basis of progress of rural electrification, LPG, and piped gas availability, which is expected to reflect much larger reductions in the next National Sample Survey Organization (NSSO) surveys. The price of PDS kerosene6 needs to be increased by at least `6 per litre so that the share of expenditure on kerosene in the total consumption expenditure of rural households remains at the same level as in 2002. Thereafter, the price of PDS kerosene should be raised every year in step with the growth in per capital agricultural GDP at nominal prices. These recommendations were based on the study that in 2004/05, only 1.3% of rural households use kerosene for cooking; among the poorest four deciles, less than 1% used it for cooking but 60% used it for lighting. • The price of domestic LPG should be periodically revised based on the increase in paying capacity as reflected in the rising per capita income. The subsidy should be discontinued for all others except the BPL households once an effective targeting system is in place. • For calculation of the under-recoveries incurred by OMCs because of the sale of PDS kerosene and domestic LPG, the extant methodology based on IPP may be continued so long as the country remains a net importer of kerosene and LPG. • The OMCs marketing PDS kerosene and domestic LPG should be compensated fully for their under-recoveries based on the mechanism of (1) periodic reduction in PDS kerosene allocation; (2) increase in prices of PDS kerosene and domestic LPG from time to time; (3) diversion of a portion of the profits of ONGC/ OIL accrued from production in blocks given to them by the

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government on nomination basis; and (4) providing cash subsidy from the budget to meet the remaining gap. The foregoing analysis of the government policies on pricing of the four sensitive petroleum products leads to the following conclusions. • Formula-based pricing of petroleum products is not conducive for viability and growth of the petroleum industry in the country. • Given the large dependence on imports, the domestic consumer prices of petroleum should be aligned with international oil markets. • A long-term price fixation mechanism is essential. • Oil companies should be free to fix energy prices in a competitive market scenario. • The government should extend subsidies to the poorer sections of the society in a manner that is not counterproductive to the functioning of oil companies. According to the Chaturvedi Committee, in 2004/05, 62% of rural households got kerosene only from PDS and consumed less than 3.5 L per month; 10.8% from both PDS and other sources and consumed around 5 L per month; 16.6% got only from other sources consuming less than 3 L per month; and 10.5% did not use kerosene at all. The Committee also observed that the primary objective of subsidizing kerosene is for lighting purpose. In the absence of electricity, kerosene has, for long, been the only source of lighting (apart from more expensive vegetable oil-based lamps). As more and more BPL families are being connected to the electricity grid under the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY), the percentage of BPL households using kerosene for lighting will be reduced substantially. With the development of LED lights, LED lanterns using ordinary dry cells provide an alternative that, at a cost comparable to what a household spends on subsidized kerosene, provides better light and involves no subsidy. As manufacturers make these lanterns available across the country, the need for kerosene for lighting will reduce. Solar lighting systems can also provide an alternative albeit at a much higher initial cost. PDS kerosene price has remained at around `9 per litre in Delhi since 2002. The under-recovery on kerosene has grown from `37 510 million in 2003/04 to `282 250 million in

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2008/09. PDS kerosene may be provided to BPL households through a system of smart cards with biometric identification. The cards would indicate the household’s entitlement of subsidized kerosene. This will reduce the PDS kerosene need by one-third, as illegal diversion would cease. The committee believed that the per capita growth of national income, when taken at constant prices, broadly reflects the changes in purchasing power of consumers and, therefore, could be a reasonable mechanism to derive the current fair price. Since kerosene is largely used in rural areas, its price should be linked to the growth of agricultural GDP. And since LPG is used largely in urban areas, its price should be determined on the basis of the growth of total GDP. This will keep the share of expenditures on kerosene and LPG in the total consumption expenditure of rural and urban households at an even level.

Rationalizing Prices of Domestic LPG The committee believed that the subsidy regime in domestic LPG was by far the most egregious and distortionary of all the subsidies in the oil sector. Normally, a subsidized product ought to be given in limited amounts. However, domestic LPG is both heavily subsidized and available in unlimited quantity. The burden of subsidy can be reduced by either raising the price or reducing the quantity or both. According to the findings of the expert committee, domestic consumption of LPG has increased from 9.3 million tonnes (MT) in 2003/04 to 12.3 MT in 2008/09. The consumer subsidy on domestic LPG has grown from `55 230 million in 2003/04 to `176 000 million in 2008/09 and is estimated to be around `141 520 million in 2009/10. The issue price of domestic LPG is `236 per cylinder (corresponding to a retail price of `294 per cylinder) as against the cost price of `407 per cylinder implying a subsidy of `171 per cylinder. This translates, at the aggregate level, to a subsidy of over `110 000 million. The committee also observed that the LPG-consuming households in the top three deciles in urban areas, comprising some 22 million households, used nearly 40% of LPG and spent less than 5% of their total expenditure. These households get a large part of the subsidy even when they have the capacity to pay the market price for LPG. Extending subsidies to these affluent sections leads to gross

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distortions of the intended objectives of the subsidy. And hence removing the subsidy on domestic LPG is an urgent imperative. It needs to be emphasized that currently there are no central taxes or duties levied on domestic LPG. If the trade parity prices for petrol and diesel are allowed to operate, there will be no subsidy burden on their account. The committee also recommended that if the subsidy on kerosene was restricted to BPL households only, the burden would be reduced by `63 150 million. Increasing the price of domestic LPG by `75 per cylinder will reduce the subsidy by a further `44 140 million. The annual gross subsidy on kerosene and LPG is `266 040 million (at 2005/06 prices). This will go down to `158 750 million if some of the measures suggested above are implemented. However, this subsidy is also a delicate issue. Since OMCs need to be freed from the burden of subsidy, the other avenues open to funding the subsidy are budgetary support from the government and support from ONGC and OIL. As far as ONGC and OIL are concerned, they are currently bearing the burden of subsidy through two routes. First, they are paying a cess levied under the provisions of the Oil Industry Development Board (OIDB) Act at the rate of `1800 per MT, which yields a revenue to the government of the order of `50 000 million. Second, ONGC and OIL are contributing `130 000 million as upstream subsidy to oil companies. It may be inferred that through appropriate pricing policy, the need to strain the resources of ONGC and OIL can be avoided, besides generating additional revenues to the government. Consequently, the only option left to finance the subsidy is funding from the government. The dilemma faced by the government is either to fund the subsidy or rationalize the aid. The government has already constituted an energy group of ministers (EGOM) to examine the effect of reducing the number of LPG cylinders sold at subsidized prices to about 4–6 with additional refills being sold at market price.

Compressed Natural Gas Given the limited production of natural gas in India, economic considerations may require that domestically available gas be made available first to those end uses that best extract its economic value among competing end uses. Such end uses in India could, for example,

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be the fertilizer sector, the petrochemicals sector, CNG vehicles, and the power sector in that order. There is also a Supreme Court order that requires preferential allocation of gas for CNG vehicles. Unless these ground realities change, gas may need to be allocated under a cost plus regulation mechanism. In view of the other advantages like lower emissions, users are willing to pay a premium on CNG. To avoid such discrepancies, till a better demand–supply balance emerges, some allocation of LPG gas to specific uses at a concessional price may be needed. Once adequate natural gas is available either as liquefied natural gas (LNG) or gas through pipelines, the marginal use in India would be in power generation where natural gas will have to compete with domestic or imported coal. Expanded usage of natural gas will continue to be dependent on imported LNG, an expensive proposition at present. As against the domestic CNG price of $4.2–5.7 MMBtu from the KG Basin, prices of imported LNG are $13–14 MMBtu, which is equivalent to $78–85 per barrel of oil. It is important to develop strategies that will permit the expansion of gas usage, including LNG, so that the portfolio of hydrocarbons is more evenly spaced out. This should take into account the greater likelihood of gas discovery in India’s economic zones, as well as the possibility of gas assets abroad, including assured forms of contractual supply.7

EVOLUTION OF COAL PRICING IN INDIA To understand the dynamics of coal pricing, it is imperative to know the various categories of coal and their usage in the energy sector. Eighty per cent8 of the domestic production of coal in India is actually used for power generation (utilities plus captive). This is normally referred to as thermal coal. The poorest quality of domestic thermal coal (grades E to G) is supplied to the power industry. The demand from the steel sector is just under 9% of domestic production and the cement sector under 5%. The brick kiln and other industries are currently put at a consumption level of 12%–13% of the domestic production. These consumers are not particularly concerned with quality but require supply at a viable price. The blast furnace-based steel industry and the mini blast furnaces of the pig iron industry need high quality coking coal. The sponge iron, corex steel, and cement industries are also consumers of higher grades of domestic

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thermal coal (grades A to D). Since India is deficient in high quality coking coals, steel producers have been depending primarily upon imported coking coal. While the demand for the power, steel, and cement sectors is fairly well established based on the output of these sectors, the demands for the brick kiln industry and other industries have never been fully tested, as the country has not experienced coal surpluses in recent history. It is likely that the demand estimates for this last category of consumers are suppressed due to limited supply. The demand–supply gap of coking coal for the steel sector and noncoking coal for the power sector is being met primarily by imports. Indian coking coal has to compete with imported coking coal on quality and cost. Domestic availability is, in any event, less than 30% of the demand. Cement, sponge iron, and corex steel sector consumers also face shortages of domestic supplies but find imported coal expensive and logistically difficult to use because of small individual demands and constrained port and rail capacity to move coal freely. They also face restrictions on trading of coal. The brick kiln and other industrial sector consumers are the only consumers that remain truly price sensitive. Consumers in this category are the marginal consumers who depend on the grey market and are not averse to using biomass or other alternatives if coal availability and prices make their operations non-remunerative. Thus this marginal segment, left without linkages and made to fend for itself, is the only segment wherein market forces are in full play. It is also important here to understand the dynamics of coal pricing for the power sector in India and the pricing of alternative primary energy sources for power generation. Coal prices were partially deregulated in 19979 (grades A to D) and completely deregulated in January 2000 (grades E to G). This, in theory, conferred the right to fix the price of coal on two public sector companies, Coal India Ltd (CIL) and Singareni Collieries Company Ltd (SCCL), which operate as exclusive producers-cum-traders of coal in India. However, the price fixed by the companies is, in reality, “guided” by the Ministry of Coal (MoC), Government of India. Though the principles of fixing prices have not been set out explicitly, it is, in essence, determined on the basis of costs incurred in its production from different mines in a coal company plus a reasonable profit margin. This has proved to be unsatisfactory as the “demand” for coal from non-power users at the price fixed is far in excess of the available supply at this price. This

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scenario has aggravated the various ills of the coal industry, including the deterioration of governance in coal mines and the interference of middlemen, musclemen, and mafia.

Expert Committee on Coal Sector Reforms The above chaotic conditions compelled the government to set up a committee to suggest comprehensive reforms in this sector. The Expert Committee on Road Map for Coal Sector Reforms, set up by the MoC in 2005, conducted extensive studies on the coal sector in India. According to the findings of the committee, the power sector primarily consumes E, F, and G grade thermal coals, which also constitute the bulk of India’s coal production. Although the stated calorific values, under the current grading system, for these grades vary over a wide range, the actual calorific value of domestic coals received at the power stations is only about 3500 kcal/kg on an average. The average ash content of lower grades of Indian coal is around 40%, while the sulphur content is below 1%. Imported coals have high calorific values (around 6200–6500 kcal/kg), low ash content (about 10%–12%) but are high on sulphur (2%–3%). The power industry uses coal in preference to other fuels because of the lower price and greater predictability of its future price as compared to natural gas. Freight plays a key role in changing the economics of domestic coal usage in India and the location of power plants. The large quantities of coal used in specific power plant locations require huge infrastructure facilities to be created in such locations. The first comprehensive energy policy document in India, namely, the Report of the Fuel Policy Committee in 1975, highlighted the need for integrated planning in production and transportation of coal and synchronized investments in the coal and railway sectors. The above observations clearly demonstrate that establishing a market mechanism for pricing coal in India is not a simple task because of multiple producers and consumers with minimal entry barriers. The price dynamics for coal and its alternatives is intricately tied up with transport costs, availability of rail and port infrastructure for coal and shipping, port and pipeline infrastructure for gas, the key alternative fuel that competes with coal in Europe and the USA. The regulatory environment created in the power industry much ahead of the regulation of primary fuel industries has further complicated

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the scenario with domestic gas seeking import parity pricing like the rest of the petroleum sector products even when power prices are regulated. Another peculiarity of the Indian system of coal pricing that has to be kept in mind is that the pricing is based on grades of coal. Each grade of coal is identified by a very broad band of “useful heat value” (UHV), a concept unique to India. Apart from the fact that the UHV concept is a legacy of the past without any scientific basis, it promotes a slab rate with increasing bandwidth for progressively lower grades of coal as opposed to a fully variable rate linked to the precise calorific value of the coal under consideration. This encourages coal companies to supply coal at the bottom of the grade bands and pass off the coal as belonging to the next higher band. The bulk of the Indian coal mined is non-tradable across borders as it has an average ash content of 40%, high moisture, and a consequent low calorific value averaging 3500 kcal/kg. To make it acceptable for even neighbouring countries, it has to be washed and beneficiated. The committee suggested two viable policy options10 with detailed comments. Option I: Coal Prices to be Totally Deregulated The industry may be allowed to sell coal at any price on the basis of mutual agreements between buyers and sellers. Such an approach in the prevailing market structure described above could be highly disruptive. Success of such a pricing mechanism depends critically on the availability of multiple producers and/or sources of supply with no entry barriers and a level-playing field for everyone. Even though the bulk of coal produced in India can only be sold to the domestic power generation industry, the existence of merely two suppliers creates monopolistic supply dynamics. Strong entry barriers, the non-level playing field for private mining, and above all, port and transport constraints would raise prices of coal leading to lowering production. Prices may exceed import parity prices till the physical bottlenecks to large-scale imports are removed. Domestic coal would still have a huge price advantage over imported coal at pithead and inland locations far from the coast. In a limited sense, the availability for the cement industry, brick kiln industry, and other industries may improve, but they would all have to pay import parity prices at the factory gate as that would be their only other option. The power sector and the rest of the economy would suffer, while the

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steel sector would mop up higher-grade domestic coals and continue to rely on imports for the balance. In the long run, the Indian coal industry could be allowed to fix the prices daily on the basis of what is known as Japan or China coal price index and in due time develop its own index. Option II: Special Price and Supply Arrangement for the Power Sector The coal price system designed should also take note of the price regulation prevailing in the power sector. With the increase in the share of coal-based power production in the total power generation, over time, the average cost of bulk power would depend on the price at which coal is sold to the power industry. In the national interest, it is imperative that power costs are kept at the lowest level so that Indian industrial production can be globally competitive and the poor among the domestic consumers could all be supplied electricity at affordable prices. For the sake of convenience, the power sector may be called a Class A consumer. All other consumers of coal may be called Class B consumers. To begin with, Class A consumers would include power utilities and captive power plants. The committee recommended that the coal requirements of Class A consumers should be supplied at prices determined strictly on a cost-to-produce basis subject to certain efficiency norms and allowing a rate of return in keeping with other energy supply industries like electricity. A tripartite agreement involving the coal supplier, the coal consumer, and the transporter, called the Fuel Supply and Transport Agreements (FSTA), should cover the supply arrangements for such consumers. Needless to say, the railways should agree to be a party to the FSTAs. It is necessary that the coal industry and the railways recognize their mutual dependence for growth and prosperity. Every year, on the basis of the production plans of public sector and private coal mines, the government would decide the quantity of coal, out of the total production, which should be earmarked for supply to Class A consumers. The remaining coal production in the country should increasingly be sold to Class B consumers, on the following basis. The larger quantity should be sold to those consumers, including associations of consumers, with a minimum annual demand of 100 000 tonnes; they can be provided with 60% of their needs under FSTA but at a

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price indexed to the e-auction price. The remaining quantity required by these companies and all other smaller consumers can be got through traders or imports or e-auction. For this method to succeed, at least 10% of the total domestic production must be sold in the open market through e-auction in the first year. The amount of coal made available for e-auctions can be raised to a minimum of 20% of the domestic production by the third year. Simultaneously, the power utility sector should be asked to set up coastal generating stations along the Western Coast of India and south Tamil Nadu based on imported coal. This will lower the dependence of domestic power utilities on domestic coal, thereby making it possible over time to raise the quantity of coal being sold in the open market through e-auctions to 25% and even 30%. If during the transition, Class A consumers as a group or an individual consumer within the group get an allocation below the projected demand for the year, the industry should, individually or collectively, arrange to import the extra requirements. Subsequently, in October 2007, the government has issued a new policy framework partially incorporating the suggestions made by the expert committee, particularly the concept of “e-auction”. The existing classification of consumers into core and non-core has been dispensed with. Instead, each sector/consumer would be treated on merit, keeping in view, inter alia, the regulatory provisions applicable thereto and other relevant factors. Under the new policy, it will be the responsibility of CIL/coal companies to meet the full requirements of coal under the Fuel Supply Agreement (FSA) even if they have to resort to imports if necessary and adjust its overall price accordingly. Salient features of the existing policy are as follows. • Requirements of defence sector and the railways will be met in full at the notified price in vogue. • Power utilities, including independent power producers (IPPs)/ captive power plants (CPPs), and the fertilizer sector will be provided 100% requirement through FSA by CIL at fixed prices to be declared/notified by CIL. • Other consumers will be provided with 75% of the requirement by CIL through FSA at the notified prices to be fixed and declared by CIL. The balance 25% of the coal requirement will be sourced through e-auction.

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• Supply of coking coal to integrated steel plants will be based on FSA according to the existing practice. The price of coal would be on the basis of import parity pricing with suitable adjustment for quality. • The earmarked quantity for consumers in small and medium sectors would be distributed through the agencies notified by the state governments. The agency notified by the state governments would be required to enter into FSA with the coal company to be designated by CIL. The present cap is also enhanced to 4200 tonnes per annum for the targeted consumers under this category. The price charged to such agencies would be the same notified price as applicable to other consumers entering into FSA. • The new commitments, including short-term tapering commitment, to consumers having captive coal block, power utilities, CPPs, IPPs, fertilizer units, and others would be issued an enforceable letter of assurance for supply of coal and thereafter they would be entitled to enter into FSA within a stipulated time subject to fulfillment of certain conditions to be stipulated therein. • New consumers from state/central power utilities, CPPs, IPPs, fertilizer, cement, and sponge iron units will be issued letters of assurance (LOA) based on prevailing norms and recommendations of the administrative ministry, which may, inter alia, have regard to LOA/linkage already granted to the consumer of the specific sector, existing capacity, requirement for capacity addition during a plan period. • All other consumers will be issued LOA by CIL based on prevailing norms and on recommendations of the administrative ministry. CIL may also engage an independent government or recognized agency/institution if required for the purpose of processing/ certification of coal requirement of individual consumers if there is no prevailing norm for such category of consumers/sectors. • On successfully achieving the milestones stipulated in the LOA, coal companies would execute FSA with the applicant consumer, covering commercial arrangement for supply of coal. FSAs would be, inter alia, based on take or pay principles. As and when FSAs come into existence, both parties, coal companies and consumers, would endeavour to enter into FSTA with the logistic provider, that is, railways. The FSTA may be made applicable first to major

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consumers like power, cement, and steel sectors and later could be extended to other consumers in a phased manner.

E-auction of Coal Coal distribution through e-auction was introduced with a view to provide access to coal for such consumers who are not able to source coal through the available institutional mechanisms. Around 10% of estimated annual production of CIL would initially be offered under e-auctions. The quantity to be offered under e-auctions would be revised from time to time. Under this scheme,11 any buyer will be entitled to buy coal under e-auction. There shall be no “floor price” in e-auctions. However, coal companies may be allowed to fix an undisclosed reserve price not below the notified price. At the beginning of the financial year, CIL shall declare a programme regarding sale of coal through e-auctions, indicating the quantity and quality of coal to be made available through auctions during all the four quarters of the year from different coal companies/coalfields. The CIL has taken a decision to adopt the internationally accepted mode of pricing of coal based on gross calorific value (GCV) with effect from 1 January 2012. This system will have 17 levels of calorific values of enlisting seven grades of A, B, C, D, E, F, and G. The revision of GCV is likely to increase the prices of domestic coal to some extent. It has been reported that the revised price of coal of 2800–3700 kcal/ kg (F grade) is `620–630/tonne. An important feature in this system is that the price of coal in the GCV system will be uniform in all coalfields instead of the present pricing of coal in each coalfield. At present, domestic coal prices are lower than the international coal prices. With the revision of coal prices in the GCV system, the difference has narrowed down. The tax concessions on import in the 2012/13 budget will further narrow this gap.12 As enumerated above, extensive studies have been undertaken in the coal sector over a period of time by various expert committees. While there are some drawbacks in the policy framework, the major flaws arise at the implementation level. These setbacks are partly due to deliberate distortions and also partly because of a lack of well-defined institutional practices and ethics. Lack of scientific assessment of actual requirements linked to the output and unfair practices in projecting requirements are the other challenges denting the already deficient energy supplies, thereby further obstructing the

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achievement of energy security. Entry of other firms from within the central, state or private sectors into all sub-sectors of energy should be facilitated. Thus, open access to distribution networks, the removal of restrictions on captive coal mines, allocations for coal, oil and gas blocks in competitive and transparent ways, and creating a level-playing field for all players must be undertaken to generate competition.

EVOLUTION OF ELECTRICITY PRICING MECHANISM Since electricity is a secondary form of energy, its pricing broadly depends on the pricing mechanisms of the primary sources of energy that generate electricity. As 80% of electricity is generated using coal as the primary source, prudent pricing policies of coal will have a bearing on the rational pricing mechanisms of electricity as well. Nevertheless, there are many other issues intrinsically linked in causing distortions in electricity production, transmission, and distribution. Beyond all the issues, the thefts, abuse, and usage of electricity as a major instrument of electoral politics is a matter of great concern; it leads to colossal wastage of resources and also inflicts severe damage on the energy security of the country. Since electricity is a concurrent subject, there were initially several problems during the formative years of independent India. During 1947–91, the electricity sector struggled to sort out its ownership, functional, and production-related issues. In this context, it may be useful to examine the evolution of the electricity sector and the problems that it has encountered in its existence and production. Prior to 1948, private entities and local authorities generated approximately 80% of the electricity in India.13 With the Electricity Supply Act of 1948, states gained control over electricity generation and each state organized a vertically integrated state electricity board (SEB). Though jurisdiction over electricity was shared between the central and state governments, SEBs functioned as autonomous institutions. They had the authority to set and collect electricity tariffs. While SEBs had the authority to price electricity, it had often been at the discretion of the state government. By 1991, SEBs controlled over 70% of power generation and virtually all distribution. They controlled most of the transmission lines within the states, and a

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national transmission grid company was developed to share power among regions. There were also a small number of private companies that continued to provide electricity services to some cities, including Calcutta and Bombay (now Kolkata and Mumbai), but which largely purchased power directly from SEBs. At the national level, the earliest attempts to reform the sector focussed on meeting the shortfall in generating capacity. The Electricity Laws (Amendment) Act of 1991 changed the 1948 Electricity (Supply) Act to allow private generators into the market with their tariffs regulated by the government. This reform was largely unsuccessful in attracting new entrants partly due to strong safeguard policies. Since the passage of this act, growth in the public sector capacity has been more than double the generation growth in the private sector. State governments, in collaboration with the World Bank, also introduced legislation that aimed to separate the vertically integrated SEBs into generation, distribution, and transmission companies. These reforms were first implemented with the support of the World Bank in Odisha in 1996. By 1998, the reforms had separated the Orissa State Electricity Board into two generation companies, one transmission enterprise and four distribution companies. Part of the agreement with the World Bank included the reform of tariffs to allow suppliers to become financially solvent. Between 1948 and 1991, the SEBs were responsible for increasing generation capacity by over 50 times, at a breakneck speed of 9.2% per year, which was at least twice India’s admittedly sluggish economic growth rate during that period (except during the 1980s, when economic growth rate was about 5.5% per year). Much of the economic expansion was in capital-intensive sectors like infrastructure and manufacturing as well as in agriculture, and much of this growth could be attributed directly to the availability of electricity.

Tariff Policy, January 2006 The Electricity Act 2003 empowered the central government to formulate the Tariff Policy and also to review or revise such policy from time to time. The act also requires that the Central Electricity Regulatory Commission (CERC) and state electricity regulatory commissions (SERCs) be guided by the Tariff Policy in discharging their functions.

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The CERC, a key regulator of the power sector in India, is a statutory body functioning with quasi-judicial status under Section 76 of the Electricity Act 2003. The CERC was initially constituted on 24 July 1998 under the Ministry of Power’s Electricity Regulatory Commissions Act 1998 for rationalization of electricity tariffs, transparent policies regarding subsidies, promotion of efficient and environmentally benign policies, and for matters relating to electricity tariff regulation. In compliance with Section 3 of the Electricity Act 2003, the National Electricity Policy (NEP) was notified on 12 February 2005. The NEP has set a goal of adding new generation capacity of more than 100 000 MW during the Tenth and Eleventh Five-year Plans to have per capita availability of over 1000 units of electricity per year, and to not only eliminate energy and peaking shortages but also have a spinning reserve of 5% in the system.14 The NEP, which has been evolved in consultation with and taking into account the views of the state governments, aims at laying guidelines for accelerated development of the power sector, providing electricity to all areas and protecting the interests of consumers and other stakeholders to maintain energy security. The policy addresses the following issues in detail. • Rural electrification • Generation • Transmission • Distribution • Recovery of cost of services and targeted subsidies • Technology development and research and development • Competition aimed at consumer benefits • Financing power sector programmes, including private sector participation • Energy conservation • Environmental issues • Training and human development issues • Cogeneration and non-conventional energy sources • Protection of consumer interests and quality standards • Securing electricity access to all households and also ensuring that electricity reaches poor and marginal sections of the society at reasonable rates within the next five years.

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In accordance with the National Electricity Policy, the Tariff Policy was notified in January 2006. The objectives of the policy15 are as follows. • Ensuring availability of electricity to consumers at reasonable and competitive rates. • Ensuring financial viability of the sector and attract investments • Promoting transparency, consistency, and predictability in regulatory approaches across jurisdictions and minimizing perceptions of regulatory risks. • Promoting competition, efficiency in operations, and improvement in quality of supply. The Tariff Policy lays down the following framework for performance-based cost of service regulation with respect to generation, transmission as well as distribution. Return on Investment The rate of return should be such that it allows generation of reasonable surplus for the growth of the sector. The CERC would notify, from time to time, the rate of return on equity for generation and transmission projects keeping in view the assessment of overall risk and the prevalent cost of capital, which should be followed by the SERCs also. The rate of return notified by the CERC for transmission may be adopted by the SERCs for distribution with appropriate modification taking into view the higher risks involved. For uniform approach in this matter, it would be desirable to arrive at a consensus through the Forum of Regulators. The state commission may consider the distribution margin of profit as basis for allowing returns in distribution business at an appropriate time. Equity Norms For financing future capital cost of projects, a debt–equity ratio of 70:30 should be adopted. Promoters would be free to have higher quantum of equity investments. The equity in excess of this norm should be treated as loans advanced at the weighted average rate of interest and for a weighted average tenor of the long-term debt component of the project after ascertaining the reasonableness of the interest rates and taking into account the effect of debt restructuring done, if any. In case of equity below the normative level, the actual equity would be used for determining return on equity in tariff computations.

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Depreciation The CERC may notify the rates of depreciation in respect to generation and transmission assets. The depreciation rates so notified would also be applicable for distribution with appropriate modification as may be evolved by the Forum of Regulators. Cost of Debt Structuring of debt, including its tenure, with a view of reducing the tariff should be encouraged. Savings in costs on account of subsequent restructuring of debt should be suitably incentivized by the regulatory commissions keeping in view the interests of the consumers. Cost of Management of Foreign Exchange Risk Foreign exchange variation risk shall not be a pass through. Appropriate costs of hedging and swapping to take care of foreign exchange variations should be allowed for debt obtained in foreign currencies. This provision would be relevant only for the projects where tariff has not been determined on the basis of competitive bids. Operating Norms Suitable performance norms of operations, together with incentives and disincentives, would need to be evolved along with appropriate arrangement for sharing the gains of efficient operations with the consumers. The CERC would, in consultation with the Central Electricity Authority, notify operating norms from time to time for generation and transmission. The SERCs would adopt these norms. Operating norms for distribution networks would be notified by the SERCs concerned. Multi-year Tariff The multi-year tariff (MYT) framework is to be adopted for any tariffs to be determined from 1 April 2006. The framework should feature a five-year control period. The initial control period may, however, be of three years for transmission and distribution if deemed necessary by the CERC on account of data uncertainties and other practical considerations. In cases of lack of reliable data, the appropriate commission may state assumptions in the MYT for the first control

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period and a fresh control period may be started as and when more reliable data becomes available. Benefits Under Clean Development Mechanism Tariff fixation for all electricity projects (generation, transmission, and distribution) that result in lower greenhouse gas (GHG) emissions than the relevant baseline should take into account the benefits obtained from the clean development mechanism (CDM) in a manner so as to provide adequate incentive to project developers. Procurement of Power Power procurement for future requirements should be through a transparent competitive bidding mechanism using the guidelines issued by the central government vide gazette notification dated 19 January 2005. Tariff Structuring A two-part tariff structure should be adopted for all long-term contracts to facilitate merit order dispatch. Availability-based tariff (ABT) is to be introduced at the state level to generating stations (including grid-connected captive plants of capacities as determined by the SERC). Differential rates of fixed charges for peak and off-peak hours should be introduced for better management of load. Power purchase agreements should ensure adequate and bankable payment security arrangements to generating companies. In case of persisting default in spite of the available payment security mechanisms, like letter of credit and escrow of cash flows, the generating companies may sell to other buyers. In case of coal-based generating stations, the cost of the project will also include reasonable cost of setting up coal washeries, coal beneficiation systems, and dry ash handling and disposal systems. Harnessing Captive Generation Captive generation is an important means to make competitive power available. The appropriate commission should create an enabling environment that encourages captive power plants to be connected to the grid. The prices should be differentiated for peak and off-peak supply, and the tariff should include the variable cost of generation

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at actual levels and reasonable compensation for capacity charges. Grid-connected captive plants could also supply power to non-captive users connected to the grid through available transmission facilities based on negotiated tariffs. Such sale of electricity would be subject to relevant regulations for open access. Non-conventional Co-generation

Sources

of

Energy

Generation,

including

Pursuant to the provisions of Section 86 (1) (e) of the act, the appropriate commission shall fix a minimum percentage for purchase of energy from such sources taking into account the availability of such resources in the region and its impact on retail tariffs. This percentage should be made applicable for tariffs to be determined by the SERCs, latest by 1 April 2006. Since it will take some time before non-conventional technologies can compete with conventional sources in terms of cost of electricity, procurement by distribution companies shall be done at preferential tariffs determined by the appropriate commission. Such procurement by distribution licensees for future requirements shall be done, as far as possible, through a competitive bidding process within suppliers offering energy from the same type of non-conventional sources. In the long term, these technologies would need to compete with other sources in terms of full costs. The CERC should lay down guidelines within three months for pricing non-firm power, especially from non-conventional sources, to be followed in cases where procurement is not through competitive bidding. Transmission Pricing Transmission charges, under this framework, can be determined on MW per circuit kilometre basis, zonal postage stamp basis, or some other pragmatic variant. The ultimate objective of this is to get transmission system users to share the total transmission cost in proportion to their respective utilization of the transmission system. The overall tariff framework should be such as not to inhibit planned development/augmentation of the transmission system, but should discourage non-optimal transmission investment. Investment by transmission developers other than CTU/STU should be invited through competitive bids. Transactions should be charged on the

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basis of average losses arrived at after appropriately considering the distance and directional sensitivity, as applicable to the relevant voltage level, on the transmission system. Based on the methodology laid down by the CERC in this regard for inter-state transmission, the Forum of Regulators may evolve a similar approach for intra-state transmission. Distribution In accordance with the NEP, consumers below the poverty line who consume below a specified level, say 30 units per month, may receive a special support through cross-subsidy. Tariffs for such designated group of consumers will be at least 50% of the average cost of supply. This provision will be re-examined after five years. Tariff on Agricultural Usages While fixing the tariff for agricultural use, the imperatives of the need for using groundwater resources in a sustainable manner would have to be kept in mind in addition to the average cost of supply. Tariff for agricultural use may be set at different levels for different parts of a state depending on the condition of the groundwater table to prevent excessive depletion of groundwater. Section 62(3) of the act provides that geographical position of any area could be one of the criteria for tariff differentiation. A higher level of subsidy could be considered to support poorer farmers of the region where adverse groundwater table condition requires larger quantity of electricity for irrigation purposes subject to suitable restrictions to ensure maintenance of groundwater levels and sustainable groundwater usage. The extent of subsidy for different categories of consumers can be decided by the state government keeping in mind various relevant aspects. But provision of free electricity is not desirable as it encourages wasteful consumption of electricity besides, in most cases, lowering the water table, which in turn creates the avoidable problem of water shortage for irrigation and drinking water for later generations. It is also likely to lead to a rapid rise in demand of electricity, putting a severe strain on the distribution network thus adversely affecting the quality of supply of power. Therefore, it is necessary that a reasonable level of user charges be levied.

196

Energy Security and Economic Development in India

Electricity Pricing (or No Pricing) as an Instrument of Electoral Politics According to Dubash and Rajan (2001), who made extensive studies on issues relating to electricity, power subsidies became routine political instruments all through the 1980s, especially in agricultural states.16 Two parallel developments starting in the 1960s and 1970s, one broadly driven by technology and the other by politics, can help explain the emergence of these crisis-like conditions for electricity. By the late 1960s, India had embarked on the Green Revolution resulting in significant increases in inputs of water and fertilizer in fields that had hitherto been almost solely dependent on rainfall. In states like Tamil Nadu and Punjab, this meant that 2–3 crops per year could be harvested, significantly raising farm productivity and profits. While this led to significant increases in food production in the country, they also had significant bearing on the electoral dynamics. The prosperity of farmers enabled them to become strong pressure groups in the electoral dynamics that followed the Green Revolution. In 1967, the Congress Party split, and for the first time, the model of a dominant party in the Indian political scene, both at the centre and in the states, was seriously challenged. The first use of electricity subsidy as a political tool occurred during the 1977 elections. The Congress-led state government of Andhra Pradesh offered flat-rate India’s electricity market Country Study and Investment Context August 16, 2005 quoted by Peter M Lamb in his working paper, “India’s power sector is a leaking bucket. The holes deliberately crafted and the leaks carefully collected as economic rents by various stakeholders that control the system. The logical thing to do would be to fix the bucket rather than to persistently emphasise shortages of power and forever make exaggerated estimates of future demands for power. Most initiatives in the power sector (PPPs and mega power projects) are nothing but ways of pouring more water in the bucket so that its consistency and quantity of leaks are assured.” — Mr Deepak S Parekh, Chairman, Infrastructure Development Finance Corporation, September 2004.17

Energy Pricing

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tariffs (tariffs based on the capacity of the pump rather than on measured consumption) to farmers as an election promise to help Congress get re-elected. Subsequently, the neighbouring state of Tamil Nadu followed suit and the new Anna Dravida Munnetra Kazhagam (ADMK) state government decided to offer free electricity to some groups of farmers. Subsequently, the political leadership in Maharashtra and Karnataka adopted similar electoral strategies. In 2004, the Congress Party in Andhra Pradesh came to power based on the electoral promise of providing free power supply. Although agricultural power subsidies were ostensibly extended to marginal farmers, several studies conducted by Dubash and Rajan (2001) revealed that the majority of beneficiaries were rich agricultural farmers who were major investors in irrigation projects. They used the surplus water either to grow high value crops or sell to other farmers. The findings of Dubash and Rajan (2001) showed that the practice of providing free electricity was seen by the rural poor as an impetus to further empowering the rich farmers. The studies also revealed that the free electricity, which was unreliable and suffered from poor quality, compelled poor farmers to prefer priced and metered electricity. Driven by the fragile electoral dynamics, political parties could not afford to roll back the agricultural subsidies and continued patronizing the rich farmers who could sway the regional political mandate in favour of the ruling parties. With the growth of agricultural connections in states18 where subsidies were being offered, the reliability of consumption estimates also became increasingly suspect. For instance, in Karnataka by the early 1990s, it was estimated that less than half the electricity produced was being metered, the rest being attributed to agriculture and transmission and distribution (T&D) losses. Indeed, the SEBs benefitted from this situation, because they could hide their losses under the category of agriculture. In the absence of incentives or regulatory checks to save either energy or groundwater resources, the scenario fast become unsustainable. According to studies, the burden of subsidies in 1989 was almost a quarter of all government expenditures. Moreover, the spiral of structural inefficiencies and misdirected subsidies led to serious financial tangles for most SEBs. The only way SEBs could be made sustainable was through discretionary state government support. Since SEBs were already mired in serious cash

198

Energy Security and Economic Development in India

flow problems, they resorted to cross-subsidies like high industrial tariffs to compensate for near-zero revenues from a growing agricultural sector. Since the levy of cross-subsidy was not found viable by industrial consumers, they turned to setting up their own captive generation plants to supplement or replace grid supply. Thus the major share of revenue of SEBs from the industrial sector dwindled from 75% in 1960 to about 40% in 1991—partly because of the rapid growth in agriculture and also due to reduction of consumption from the grid by many industrial consumers. Besides, other operational problems like technical and “commercial” losses also cropped up like unaccounted revenue losses from unmetered subsidized connections. In order to address these intricate issues, in 1975, the Government of India established the National Thermal Power Corporation (NTPC) and the National Hydroelectric Power Corporation (NHPC). These initiatives were carried out with the support of the World Bank that provided around $7 billion for power sector projects in India between 1970 and 1991. More than half of this amount was earmarked for large thermal power plants built by the NTPC. Subsequently, in coordination with the World Bank, substantial reforms in the SEBS were undertaken, including financial restructuring, tariff adjustments, improved metering and collection. Furthermore, between 1989 and 1994, the private sector was encouraged to enter the realm of power generation and distribution through financial support and equity investments. In view of the serious challenges faced by the power sector (as enumerated above) and in order to develop a rational and dynamic pricing mechanism, it was one of the first sectors identified for liberalization in the early 1990s when the Government of India chose to open its economy for foreign direct investments. Despite several policy initiatives, the current distribution losses are estimated at `700 000 million. The Planning Commission, in its draft Twelfth Fiveyear Plan, while commenting that continuing losses on this scale are simply not viable, has identified three elements that explain these huge losses. First, the state power regulators have, in most cases, lagged in setting power tariffs annually as they were supposed to. This is largely a reflection of political pressure on the regulators and in some cases also of political pressure on the utilities themselves to ensure

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that they do not ask for tariff revision. Second, the supply of free or virtually free power to the farm sector, and its mostly unmetered nature, leads to considerable leakage. Finally, state-owned power utilities have tolerated large losses, often reflecting the collusion between the distribution staff and the consumer. They have not made investments needed on the transmission side to reduce losses and have also not fully used the meters that have been installed under the meterization programme, to identify and rectify power leakages.

Bearing of T&D Losses Over Energy Pricing T&D losses have significant impact, directly or indirectly, on the pricing of electricity. Thus it may not be out of context to briefly analyse the T&D segment of India’s electricity sector. Subsequent to the advent of economic liberalization in 1991, several efforts have been made to separate T&D operations from generation of electricity. Several state governments in India have already created separate private companies for this purpose. The private sector has also been encouraged to make investments in this sector. At a national level, the entire country has been divided into five regions:19 northern, north-eastern, eastern, southern, and western. Power supply to end consumers such as domestic residential connections, industrial load, agriculture load, and public street lighting is made by distribution companies (Discoms), which hold licenses to make such supply within a specified geographical area. However, according to a Planning Commission report in 2010, “Although the power transmission segment has been opened to private investment in 1998, there has been only a limited success in attracting private investment”. Nevertheless, T&D losses at the national level, which were at 29% in 2006/07,20 fell to around 27% in 2007/08. However, aggregate technical and commercial (AT&C) losses were reported to be over 30%. While T&D losses are technical losses incurred in transmission and distribution of electricity to the consumer, AT&C represents aggregate technical and commercial losses, which estimate commercial losses (covering theft and deficiencies in billing and collection) plus T&D losses, and is a true indicator of total losses in the system. AT&C losses lead to high financial losses. The total loss, incurred by the distribution companies, taken together was estimated at about `700 000 million in 2009/10. There is a huge scope for technical advancement of

200

Energy Security and Economic Development in India

T&D networks with the help of automation and control technologies, information and communications technology, which may reduce the burden of electricity bills of common households. Unless the issue of free electricity is addressed, it will have a severe bearing on the energy pricing causing a serious dent in the strategies for attaining energy security. While several reforms have been undertaken by different state governments, there are several lacunae in their implementation mechanism. This has to be corrected. Technological advancement for transmission lines of 765 kV and over 1000/1200 kV is of great relevance in order to reduce land requirement and also to prevent transmission losses. Apart from the structural issues, taxation issues will also have major impact on the pricing of energy resources. Some of these taxation issues are analysed as follows. Average electricity tariff in India in 2009/10 was around `4 per unit, while the average cost of supply was `4.50 per unit. The average consumer tariff in India, China, and the USA in 2009 can be seen in Table 4.

Consistency of Taxes Across Fuels Currently, the central and state taxes on various forms of primary and secondary energy are a significant part of the final price. More importantly, these taxes are not applied consistently, thereby resulting in significant price distortions. Taxes are essential for raising revenues, but the following guidelines21 are important to ensure that they minimally affect energy choices. • Central and state taxes on commercial energy supplies need to be rationalized so as to become neutral to fuel choices and investment decisions. • The equivalence of taxes across competing fuels should be uniform with respect to energy service delivered duly adjusted for prevailing overall energy efficiency levels and any other specific externality relevant to specific fuels. Table 4 Electricity tariffs in US cents/kWh Country

Residential

Agriculture

Industry

Commercial

China

6.8

5.8

6.9

12.3

India

5.4

2.0

9.3

9.5

USA

11.51

NA

6.81

10.17

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201

• Elimination of differential taxation by state governments can reduce distortions. • Eliminating differential customs duty on crude and petroleum products, differential levies on alternative fuels, removing or applying a uniform low custom duty on all imports for energy sector projects/investments/supplies are other measures critical to rationalizing taxes in order to minimize distortions in energy markets. • Removal of misplaced incentives such as those available to mega power projects is needed. There should be no discrimination in available incentives based on size or type of technology or fuel used. • In fact, incentives should be similar for each of the energy sub-sectors so that balanced development takes place. Any tax concession or duty exemption provided should be available to all energy sub-sectors unless it supports a well-documented economic benefit. • Taxes and subsidies to create differential pricing can create adverse spill-over effects. For example, lower taxation of diesel to boost public transport has several negative outcomes such as adulteration, less emphasis on efficiency in road transport carriage, agricultural and off-road applications, a negative environmental impact, and the spawning of diesel passenger vehicles.

Environmental Taxes While taxes to raise revenues should be levied in a way that least affect fuel/energy choices, environmental taxes and subsidies can be used to actually affect fuel/energy choices. Some options22 available to deal with environmental externalities are as follows. • A consistent application of the “polluter pays” principle or “consumer pays” principle should be made to attain environmental objectives at least cost where prescribed environmental norms are either not applied consistently or not being adhered to. • Offering incentives, cross-subsidies, tax breaks for public investments in energy-efficient rail freight, electrification of railways, building double-decked freight trains, improved mass transportation options, and research and development for efficient engines or fuel alternatives could also help mitigate environmental concerns.

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Energy Security and Economic Development in India

• Energy conservation regulations such as minimum vehicle occupancy ratios, minimum fuel efficiency norms, or even allowing odd-and even-numbered vehicles on road on alternate days.

PRICING OF RENEWABLE ENERGY With the end of fossil fuels in sight, focus has shifted towards the use of renewable energy resources in day-to-day life. Use of solar, wind, tidal, and geothermal energies and biofuels is fast becoming common all over the world. Although these energy resources do not play a major role in the commercial energy sector, more and more research and development is being carried out to make them economically viable and competitively priced for citizens of the country. Research and development and use of such renewable energy resources are still in its nascent stage in India except wind power. Unlike fossil fuels, renewable energy resources like solar energy panels and wind turbines need large areas of land and huge initial investments to be used effectively and economically. Varying geological conditions, different state laws, and non-availability of proper infrastructure shall have a major role in development and pricing of these energy resources. For example, a biogas plant would definitely be more economical, useful, and practical in a rural landscape than in urban centres. Similarly, a solar plant would be economical in Rajasthan and Madhya Pradesh instead of Meghalaya and Assam. Owing to these factors and various competing laws in different states in India, renewable energy presents itself as a new source of energy that needs to be developed and researched thoroughly. Once a certain level of development and efficiency is reached, pricing of these energy resources will play a crucial role in governing the selection of these in daily life. While considerable experience has been gained in fixing prices for petroleum products, policies relating to renewable energy are yet to be evolved. Nevertheless, some initiatives have already been taken in this regard. As discussed earlier, the Tariff Policy 2006 stipulated differential tariffs for renewable sources of energy since it will take some time before non-conventional technologies can compete with conventional sources. Since non-renewable sources of energy are expected to play a significant role in the energy mix in the future, we need to set up expert committees to look into this subject, undertake

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comprehensive studies, and evolve appropriate pricing mechanisms in this arena. While government efforts are intensely and rightly focused on development and investment-related issues, the study of pricing mechanisms can no longer be ignored. It is good that India has already initiated some steps in this direction. They are briefly listed as follows. The CERC is inviting comments and suggestions for the revision of the price band23 for Renewable Energy Certificates (RECs) traded at the power exchanges. The following price band is proposed, which will be effective from April 2012. Trading of RECs based on Renewable Purchase Obligations (RPOs) started in India in March 2011. REC trading takes place on the last Wednesday of every month, and RECs are traded as either solar RECs or non-solar RECs. The price band in which the RECs will be traded is set by the CERC, and the current price is valid for the financial year 2011/12. It is in this context that the CERC is proposing a downward revision of the REC pricing with effect from April 2012. This is in line with the practice in countries, including Germany, where the feed-in-tariffs (FIT) for solar energy and other renewables are reduced periodically. This periodic reduction, also known as digression, is done to make sure that the subsidy (in the form of FIT) is in line with the falling prices of renewable energy systems. There are some concerns about this mechanism among the industry. Apart from generating lower cash flows, the uncertainty caused by the unknown periodic degradation of RECs will make it difficult for a project developer to estimate the viability of the REC-based renewable energy project over a 15–20-year life time of the project. Thus, this mechanism needs more elaborate studies by experts to make it sustainable. As highlighted above, policies and strategies have continuously been modified in consonance with the industrial, trade, and commercial policies and economic progress of the country. With planned economic liberalization and the opening up of the Indian market, the policies of heavy subsidization of energy prices and financial protection of large inefficient public sector units that were followed hitherto started giving way to disinvestment and privatization, as a result of which energy pricing was gradually allowed to fall in sync with the international market prices. A shock-absorbing effect was always provided by the government in order that the middle class do not

204

Energy Security and Economic Development in India

wake up to a new petrol price every day. This has been the case in other heavily industrialized economies of the world where instances of two petrol stations at each end of the street selling energy products at two different set of prices are common. In a vibrant democratic set up like India, issues relating to pricing of energy will attract massive political activism. The government has to be always alert in responding to the changing dynamics of energy pricing and develop prudent policy mechanisms to ensure energy security.

NOTES 1. Planning Commission. 2011. Faster, sustainable, and more inclusive growth: an approach to the Twelfth Five-year Plan. New Delhi: Planning Commission. Details available at 2. Report of the Committee on Pricing and Taxation of Petroleum Products, February 2006, Government of India, details available at 3. Report of the Committee on Pricing and Taxation of Petroleum Products, February 2006, Government of India, details available at 4. From author’s interaction with officials in the Planning Commission 5. MoPNG (Ministry of Petroleum and Natural Gas). 2010. Report of the expert group on a viable and sustainable system of pricing of petroleum products. New Delhi: MoPNG 6. MoPNG (Ministry of Petroleum and Natural Gas). 2010. Report of the expert group on a viable and sustainable system of pricing of petroleum products. New Delhi: MoPNG 7. Planning Commission. 2011. Faster, sustainable, and more inclusive growth: an approach to the Twelfth Five-year Plan. New Delhi: Planning Commission. Details available at 8. Report of the Expert Committee on Road Map for Coal Sector Reforms, December 2005, Government of India, details available at 9. Report of the Expert Committee on Road Map for Coal Sector Reforms, December 2005, Government of India, details available at 10. Report of the Expert Committee on Road Map for Coal Sector Reforms, December 2005, Government of India, details available at 11. Details available at 12. From author’s interaction with officials in the Planning Commission

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13. Badiani, R., K. K., Jessoe. 2010. Electricity subsidies, elections, groundwater extraction and industrial growth in India. Details available at 14. Tariff policy, published in the Gazette of India, Extraordinary Part I, Section 1, by Ministry of Power (RESOLUTION No.23/2/2005-R&R(Vol. III) dated 6 January 2006. Details available at 15. Tariff policy, published in the Gazette of India, Extraordinary Part I, Section 1, by Ministry of Power (RESOLUTION No.23/2/2005-R&R(Vol. III) dated 6 January 2006. Details available at 16. Dubash, N. K., and Rajan, S. C. 2001. The politics of power sector reform in India. Details available at 17. Lamb, P. M. 2006. The Indian electricity market: country study and investment context. Details available at 18. Dubash, N. K., and Rajan, S. C. 2001. The politics of power sector reform in India. Details available at 19. Alagh, Y. 2011. Transmission and distribution of electricity in India: regulation, investment, and efficiency. Details available at 20. Alagh, Y. 2011. Transmission and distribution of electricity in India: regulation, investment, and efficiency. Details available at 21. Planning Commission. 2006. Energy policy options/initiatives. In Integrated Energy Policy: report of the expert committee. New Delhi: Planning Commission. Details available at 22. Planning Commission. 2006. Energy policy options/initiatives. In Integrated Energy Policy: report of the expert committee. New Delhi: Planning Commission. Details available at 23. Nampoothiri, M. 2011. Changes to the renewable energy certificates (RECs) price band. Details available at

9 Geopolitics and Energy Diplomacy The quest for energy resources has always been central to geopolitics and international relations throughout modern history. It is the access to energy that has primarily determined the growth of civilization. In prehistoric times, major civilizations flourished at places where abundant sunshine and water, the primary sources of energy, were available. Water and firewood continued to play a critical role even in the medieval ages. In modern times, prior to the Industrial Revolution, a country’s economic and military strength was critically dependent on the availability of coal; these were the tentacles of energy geopolitics. After oil replaced coal as the prime source of energy, the dimensions of geopolitics became more complex. Even though coal was an important fuel in the energy mix of most economies, the stretches of geopolitics of coal was limited as coal was available in adequate quantities within the countries that needed it without the necessity for major international trading. This was also partly because of the greater constraints in bulk transportation of large quantities. Conventional energy sources like oil and natural gas determined the energy regime of global politics making energyproducing countries and transiting countries important variables that influenced international relations. Exploring and developing conventional energy required huge capital investment, and deep political linkages were supplemented by military vanguards. Consequent to the Industrial Revolution, the matrix of the energy mix became more complex and sophisticated. Industrialized countries have become unprecedentedly energy dependent not only for their sustained prosperity but also for their way of life. Unconventional

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Energy Security and Economic Development in India

fossil fuels like shale gas and oil sands are displacing conventional fossil fuels from the centre stage. Similarly, renewable sources of energy are also occupying prominent place in the energy mix. These changes are driving geopolitical shifts, changing the discourse of the international relations. The central tendency of these developments is geographical shifts and diversity of energy mix. Daniel Yergin of IHS Inc. predicts a new world oil map emerging on the western hemisphere, and not centered on the Middle East, with a new energy axis from Canada through North Dakota and South Texas past French Guiana to Brazil’s pre-salt fields. Geopolitics of energy plays a crucial role since the majority of world’s leading energy producers are not its principal consumers, perhaps with a few exceptions. An energy transition, whether it is from steel to coal, from coal to oil (and later natural gas), and the present day transition to renewable forms of energy, has always been an important market in economic growth and transformation. In the past, an energy shift was purely based on economic considerations. But at present, such a shift is also characterized by economic and environmental factors. These changes have profound impact on the economic and social fabric of any particular society besides throwing new challenges to foreign policy options. In a way, each source of energy requires a unique strategy to deal with. Providing adequate, reliable, and affordable energy to its citizens has become a permanent goal of nations. In the changing scenario, it is important to analyse geopolitics keeping in view the dynamics of each source of energy. Accordingly, it is worth starting with the graphics of India in the oil sector. “India’s impressive economic growth during the last decade has intensified the country’s demand for oil, which rose by 5% over the last decade compared with 1% annual growth in global oil demand”.1 According to the Planning Commission, India’s oil consumption in 2010/11 was 164.32 million tonnes (MT), of which domestic production was only about 38 MT.2 India may have to bear the burden of about 10% of the gross domestic product (GDP) towards the oil bill. India ranks 25th in the world as a producer of crude oil, accounting for about 1% of the world’s annual crude oil production and origination. India’s offshore and onshore basins may contain as much as 11 billion barrels. In 2008/09, against the total imports of $64 billion, oil imports accounted for $21 billion. In terms of petroleum product consumption by sector, transport accounts for 42% followed by the domestic industry with 24%. According to the International Energy Agency (IEA), India’s oil

Geopolitics and Energy Diplomacy

209

demand, which was 3 million barrels per day (mbpd) in 2009, will be 5.1 mbpd by 2025 and 7.5 mbpd by 2035 (Table 1). Oil accounted for about 33% of India’s total energy consumption in 2008/09. Presently, India is one of the top 10 oil-guzzling countries in the world, and perhaps in the not very distant future, the country will overtake Korea as the third largest consumer of oil in Asia, after China and Japan. India imports 70% of its crude oil requirement from the Gulf countries.3 Table 1

Primary oil demand by region in the New Policies Scenario (mbpd) 1980

2009

2015

2020

2025

2030

2035

2009–35* (%)

41.3

41.7

41.1

39.8

38.2

36.7

35.3

–0.6

North America 20.8

21.9

21.9

21.4

20.8

20.1

19.4

–0.5

USA

17.4

17.8

17.7

17.2

16.5

15.8

14.9

–0.7

Europe

14.4

12.7

12.4

11.9

11.4

10.8

10.4

–0.8

Pacific

6.1

7.0

6.9

6.4

6.1

5.8

5.6

–0.9

Japan

4.8

4.1

3.8

3.5

3.2

3.0

2.9

–1.3

Non-OECD

20.0

35.8

41.1

44.1

47.5

51.1

54.6

1.6

Eastern Europe 9.1 /Eurasia

4.6

4.9

5.0

5.2

5.2

5.4

0.6

Caspian

NA

0.6

0.7

0.8

0.8

0.9

0.9

1.6

Russia

NA

2.8

2.8

2.9

3.0

3.0

3.0

0.4

Asia

4.4

16.3

19.7

21.8

24.4

27.3

30.0

2.4

China

1.9

8.1

10.6

11.7

13.0

14.3

15.3

2.4

India

0.7

3.0

3.6

4.2

5.1

6.2

7.5

3.6

Middle East

2.0

6.5

7.5

8.0

8.5

8.9

9.2

1.3

Africa

1.2

3.0

3.1

3.3

3.4

3.6

3.8

0.9

Latin America

3.4

5.3

5.8

5.9

6.0

6.1

6.2

0.6

Brazil

1.3

2.1

2.4

2.5

2.5

2.5

2.6

0.8

Bunkers

3.4

6.5

7.0

7.5

7.9

8.5

9.1

1.3

World

64.8

84.0

89.2

91.3

93.3

96.4

99.0

0.6

European Union

NA

12.2

11.8

11.3

10.7

10.1

9.6

–0.9

OECD

#

OECD – Organization for Economic Cooperation and Development *  Excludes biofuels demand, which is projected to rise from 1.1 mbpd (in energy equivalent volumes of gasoline and diesel) in 2009 to 2.3 mbpd in 2020 and to 4.4 mbpd in 2035 #  Includes international marine and aviation fuel Source IEA (International Energy Agency). 2010. Oil market outlook. In World Energy Outlook 2010. Paris: IEA. Details available at

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Energy Security and Economic Development in India

While all these projections are a broad indicator of the growing demand for oil, the real demand (which may be much more than the above projections) will be difficult to estimate due to the silent transformation of living standards and lifestyles in rural India. Despite the operationalization of the New Exploration Licensing Policy (NELP) in 1999, India’s oil production has been stagnant. New fields could not be developed due to the lack of investments, exploration technology, and seismic data. At present, two-thirds of India’s imported oil4 comes from the Gulf region and another 15% from Nigeria alone (Figure 1). Saudi Arabia continues to maintain its position as the largest producer through 2035 (Figure 2). Its total production is likely to increase from 10.7 mbpd to 15.4 mbpd by 2035. Qatar has the second highest average annual growth rate with the total volume increasing from 1.2 mbpd in 2008 to 2.5 mbpd in 2035. Iran continues to maintain its present capacity throughout. Iraq has the potential to register the largest annual average growth among all members of the Organization of the Petroleum Exporting Countries (OPEC) with 3.7%, subject to resolution of its political, legislative, infrastructural, and security uncertainties. The other Middle Eastern countries will continue to maintain their production with increased capacities. The Gulf region is geographically close to India and has the presence of a large Indian community. India’s current policy of embarking on diversification of sources of oil by making equity investments has to be further strengthened. As a major consumer of oil and gas from Saudi Arabia (18%) Iran (16%) Kuwait (10%) Iraq (9%)

UAE (8%) Nigeria (8%) Angola (8%) Venezuela (4%) Others (22%)

Figure 1 India’s crude oil imports

Geopolitics and Energy Diplomacy

211

Saudi Arabia

Iraq

Other Middle East

West Africa

2008 2035

Iran South America

North America

Figure 2 OPEC conventional liquid production by country and region, 2008 and 2035 (mbpd) Source EIA (Energy Information Administration). 2011. International Energy Outlook 2011. Washington, DC: EIA. Details available at

Gulf and also as an emerging power, India should play an active part in providing an alternative paradigm for Gulf security. In the last few years, Indian oil companies, from both public and private sector, have made significant investments in discovering or producing oilfields as well as exploration blocks in countries as diverse as Russia, Sudan, Vietnam, Myanmar, Iran, Iraq, Yemen, Oman, Syria, Egypt, Libya, Columbia, Cuba, and also in Nigeria and other countries in West Africa. These ventures are expected to contribute to around onefourth of India’s rapidly growing demand, but the security risks in transportation of this oil are still looming. Disruptions in production and supply could pose serious challenges to energy security that can bring the entire arena of economic activity to a grinding halt. While India has strong relations with these countries, there is a need to convert them into long-term strategic partnerships in the energy sector by way of joint ventures in exploration, setting up refineries and petrochemical industries, and marketing. Such strategic relationships will substantially enhance India’s energy security. Getting uninterrupted oil supplies should be a central precept of the proposed free trade agreements that are currently under negotiations

212

Energy Security and Economic Development in India

with countries of the Gulf Cooperation Council, which includes Saudi Arabia, Kuwait, Qatar, Bahrain, United Arab Emirates, and Oman. While many of the Gulf countries are rich in oil revenues, they do not have adequate refining capacities. Perhaps Indian diplomacy has to focus on developing a synergy between the oil resources of Gulf countries and the growing refining capacities of India. India has the largest refining capacity in Asia, spearheaded by the Jamnagar refinery of Reliance Industries Ltd (RIL), which, after its 2009 capacity addition, is the world’s largest refinery (with a capacity of 1.24 mbpd).5 Moreover, for all the discussions about India’s growing dependence on crude oil imports, it is important to mention that by 2012, India will emerge as Asia’s largest exporter of refined petroleum products. However, new discoveries are increasingly coming from non-OPEC countries. By 2035, OPEC is predicted to produce 46.9 mbpd, whereas non-OPEC countries will produce 65.3 mbpd against 50 mbpd in 2008 (Figure 3). Most of such production will come predominantly from countries like Russia, Brazil, Kazakhstan, Canada, and the USA.6

RESERVES As of 1 January 2011, the world’s proven oil reserves were estimated at 1471 billion barrels.7 Out of this, 51% are located in the Middle

Figure 3 Non-OPEC conventional liquid production by region, 2008 and 2035 (mbpd) Source EIA (Energy Information Administration). 2011. International Energy Outlook 2011. Washington, DC: EIA. Details available at

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East. Eighty-one per cent of these world’s reserves are located in nine countries: Saudi Arabia, Venezuela, Canada, Iran, Iraq, Kuwait, United Arab Emirates, Russia, and Libya (Table 2). The largest increase in proven reserves is attributed to Venezuela consequent to the discovery of the Orinoco oilfields. As a result of this discovery, Venezuela’s reserves alone have increased by 113 billion barrels. Libya’s proven reserves have increased by almost 2 billion barrels. Uganda, which previously did not report any reserves, now claims 1 billion barrels. Ghana’s recent discoveries of the Jubliee Tweneboa and Owo fields raised its reserves from 15 million barrels in 2010 to 660 million barrels in 2011. The largest Table 2

World oil reserves by country as of January 2011 (billion barrels)

Country

Oil reserves

World total (%)

Saudi Arabia

260.1

17.68

Venezuela

211.2

14.35

Canada

175.2

11.91

Iran

137.0

9.31

Iraq

115.0

7.82

Kuwait

101.5

6.90

United Arab Emirates

97.8

6.65

Russia

60.0

4.08

Libya

46.4

3.16

Nigeria

37.2

2.53

Kazakhstan

30.0

2.04

Qatar

25.4

1.73

USA

20.7

1.41

China

20.4

1.38

Brazil

12.9

0.87

Algeria

12.2

0.83

Mexico

10.4

0.71

Angola

9.5

0.65

Azerbaijan

7.0

0.48

Ecuador Rest of world World total

6.5

0.44

74.9

5.09

1 471.2

100.00

Source EIA (Energy Information Administration). 2011. International Energy Outlook 2011. Washington, DC: EIA. Details available at

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decreases of 14% reserves were attributed to Europe with notable declines for Norway, Denmark, and the UK. The discovery of these new reserves offers a wonderful opportunity to India in developing new and long-term strategies in its diplomatic engagement with these countries.

How is oil formed? A basic understanding of the formation of oil reservoirs is helpful in understanding the differences between the types of unconventional oil presented in this chapter. Oil deposits result from the burial and transformation of biomass over geological periods during the last 200 million years or so. The biomass is typically contained in a type of sediment called shale (though its mineral composition can vary), deposited at the bottom of the ocean or lake basins. As those sediments get buried, the biomass is transformed into complex solid organic compounds called kerogen. When the sediments are deeply buried, the temperature may be sufficient for the kerogen to be transformed into oil and gas. Under pressure, the oil (or gas) can be expelled from the shale sediments where they were created (known as source rocks) and begin to migrate upwards (due to their low density) into other sedimentary rocks, such as sandstone or carbonates. This upward migration stops when the oil encounters a low permeability rock that acts as a barrier to its movement (cap rock). A conventional oil reservoir is formed in this way. When the oil does not encounter any significant barrier until it gets near the surface, it can become more and more viscous, as the temperature decreases and some of the lighter components of the oil seep to the surface, where they are degraded by bacteria and escape to the atmosphere. The remaining very viscous oil can become almost solid and stop migrating, even in the absence of a strong cap rock, forming relatively shallow deposits of very viscous, extra-heavy oil or natural bitumen. Source IEA (International Energy Agency). 2010. Oil market outlook. In World Energy Outlook 2010. Paris: IEA. Details available at

UNCONVENTIONAL OILS There is no universally agreed definition of unconventional oil, as opposed to conventional oil. Broadly, any source of oil is described

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as unconventional if it requires production technologies significantly different from those used in the mainstream reservoirs exploited today. The US Energy Information Administration (EIA), in International Energy Outlook 2011, defined the following categories of oil as unconventional. • Bitumen and extra-heavy oil from Canadian oil sands • Extra-heavy oil from the Venezuelan Orinoco belt • Oil obtained from kerogen contained in oil shales • Oil obtained from coal through coal-to-liquid technologies • Oil obtained from natural gas through gas-to-liquid technologies, as well as refinery additives and gasoline-blending additives originating primarily from gas or coal, such as methyl tertiary butyl ether (MTBE), or methanol for blending Table 3 depicts the bitumen and extra-heavy oil resources, by country. Table 3

Natural bitumen and extra-heavy oil resources by country (billion barrels) Ultimately recoverable resources

Original oil in place

170

£800

£2000

*

500

£1300

Russia

—

350

850 #

Kazakhstan

—

200

500

USA

—

15

40

UK

—

3

15

China

—

3

10

Azerbaijan

—

2

10

Madagascar

—

2

10

Other

—

14

30

World

230

£1900

£5000

Canada Venezuela

*

Proven reserves

60

As reported by the Oil and Gas Journal (2009), the national oil company Petroleos de Venezuela (PDVSA) currently reports 130 billion barrels as proven (discussed later in this chapter) # From BGR (2009); Russian authors report significantly smaller resources, of the order of 250 billion barrels; the same applies for Kazakhstan. Bitumen resources, in particular, are poorly known, as a high percentage is located in the vast and poorly explored region of eastern Siberia. BGR reports 345 billion barrels recoverable, which is more in line with Russian publications. Source IEA (International Energy Agency). 2010. Oil market outlook. In World Energy Outlook 2010. Paris: IEA. Details available at

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As new fossil fuel discoveries are increasingly unconventional oils, it is important to analyse the dynamics of these resources. Oil sands (very viscous oil and bitumen) production will climb from about 1.3 mbpd in 2009 to 4.2 mbpd in 2035, with around two-thirds of the increase coming from in situ projects. Very large deposits of oil sands exist in Canada at relatively shallow depth. They cover a vast region of Alberta and, to a lesser extent, Saskatchewan. The total oil in place is estimated to be in excess of 2 trillion barrels. As per the IEA, the potentially recoverable unconventional oil resources are 1.5 times larger than the remaining conventional proven resources. These proven resources of oil sands turned the country into world’s third largest holder of oil reserves after Saudi Arabia and Venezuela. There are bitumen and extra-heavy oil deposits in countries other than Canada and Venezuela, but only Canada and Venezuela are likely to play a significant role in the exploitation of these resources in the timescale of these projections. The Venezuela Orinoco oil belt is the second-largest deposit of extra-heavy oil (with an American Petroleum Institute [API] gravity of less than 10) in the world, after the Canadian oil sands. The amount of oil in place is estimated to be 1.3 trillion barrels, over an area of about 50 000 km2. Although the deposits are deeper than those in Canada, typically 500–1000 m, the oil is somewhat less viscous at reservoir temperatures (typically of about 55°C). However, it is still not generally amenable to conventional production techniques. A recent evaluation by the United States Geological Survey (USGS) estimated the technically recoverable oil from the Orinoco province to be about 500 billion barrels. Although the USGS has not given any estimate of economically recoverable resources, it is likely that a large fraction of that volume is economically recoverable at current prices. Petroleos de Venezuela (PDVSA), a national oil company of Venezuela, launched in 2006 the Magna Reserva Project to certify reserves in the Orinoco. By early 2010, 133 billion barrels had been certified, although the Oil and Gas Journal currently reports only 60 billion barrels. PDVSA expects around 230 billion barrels to be proven by the end of the project. Heavy oil projects have also been actively planned in Brazil, in the North Sea and in the Neutral Zone between Saudi Arabia and Kuwait (where Chevron plans production of up to 300 thousand barrels per day (kbpd) from steam-enhanced oil recovery in the Wafra field) and

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several other places in the world. The Pungarayacu heavy oilfield in Ecuador may have close to 20 billion barrels of oil originally in place, according to the operator Ivanhoe Energy, which plans to apply its small-scale upgrading technology for the development of this remote field. In the USA, there are deposits similar to, although much smaller than, the Canadian oil sands in Utah (with 16 billion barrels of oil originally in place). Congo, Madagascar, and a few other countries have small projects in oil sands-like deposits. However, none of these are large enough to have a significant impact on world oil supply. For example, the Kern River heavy oil area in California has been using steam stimulation since 1965, producing more than 1 billion barrels from this technology, and the area still produces around 250 kbpd. The recovery rate in this heavy oilfield, typically around 5% with primary production alone, can reach 50%–70% with steam stimulation. A similar situation applies in the Duri field in Indonesia, the largest steam-stimulation project in the world, which has produced close to 2 billion barrels since 1975 and still produces around 200 kbpd. Russia is estimated to have several hundred billion barrels of technically recoverable extra-heavy oil and bitumen. The large bitumen resources thought to be present in Eastern Siberia are poorly known and difficult to exploit due to their remoteness from infrastructure. Some of the reported heavy oil is, in fact, medium-viscosity and is exploited by conventional methods. In the more viscous reservoirs, and some of the bitumen deposits in Tatarstan, there have been pilot projects with steam stimulation, and more recently, with SteamAssisted Gravity Drainage (SAGD) technology, but no clear plan exists for large-scale development. Current economics favour the exploitation of large conventional oil resources. A similar situation exists in Kazakhstan. The Tatarstan Republic region of Russia, which is estimated to have more than 20 billion barrels of ultimately recoverable extra-heavy oil and bitumen, and an economy highly dependent on very depleted conventional fields, is the most likely location for the start of larger scale development. China has some heavy and extra-heavy oil reservoirs, which are yet to be tapped, with probably a total of a few billion barrels of recoverable oil. It is estimated that the equivalent of more than 5 trillion barrels of oil are in place in oil shales (Table 4) around the world (including

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Table 4

Oil shale resources by country (billion barrels) Oil originally in place

USA

≤3000

Technically recoverable ≤1000

Russia

290

NA

Congo

100

NA

Brazil

85

3

Italy

75

NA

Morocco

55

NA

Jordan

35

30

Australia

30

12

China

20*

4

Canada

15

NA

Estonia

15

4

Other (30 countries)

60

20

≤3500

NA

World

* A recent Chinese study from Jilin University, performed as part of the Chinese National Petroleum Assessment, reports 350 billion barrels in place of which 80 billion barrels is recoverable. Source IEA (International Energy Agency). 2010. Oil market outlook. In World Energy Outlook 2010. Paris: IEA. Details available at

deeper shales) of which more than 1 trillion barrels may be technically recoverable (this includes only oil shales at shallow depth). How much of this may be economically recoverable is not known. The Green River area in the USA, where Colorado, Utah, and Wyoming meet, is thought to contain more than half of all the recoverable oil shale resources in the world, around 800 billion barrels and, therefore, has received the most attention. Oil shales have been exploited for centuries, mostly as a low quality fuel for heating. Estonia has long mined oil shales for power generation. Worldwide, only a small amount (15 kbpd) is processed into liquid oil—in Estonia (4 kbpd), Brazil (4 kbpd), and China’s Fushun shale oil plant (7 kbpd). Extensive studies were made of the US Green River area and some pilot projects were launched in the 1970s and 1980s, when this resource was seen as a potentially important source of domestic oil supply.8 However, during the period of low oil prices from the early 1980s to the early 2000s, all projects were shelved; only in the last few years, some feasibility studies and pilot projects have been resumed. Australia had a significant project planned in the Stuart shale near Gladstone in Queensland (up to

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200 kbpd in the third phase) in the early 2000s, following a pilot plant in the 1990s, but it was shelved due to concerns about damage to the environment and rising costs. Unconventional oils constitute new frontiers of fossil fuels largely located in non-OPEC countries, led by North America. Discoveries of these oils have thrown open new opportunities while unfolding policy dilemmas. The huge economic benefits are imbued with adverse environmental impacts. India has to closely monitor how the economic and geopolitical dynamics will evolve in this arena.

GAS-TO-LIQUIDS Gas to liquids (GTL) is a relatively mature technology, but experienced an upsurge in interest in the early to mid-2000s as a result of technological advances and higher oil prices. However, some technical problems with the commissioning of a new plant in Qatar and a sharp rise in construction costs, together with increased interest in liquefied natural gas (LNG), which competes with GTL for gas feedstock, have led to many planned GTL projects being shelved in the last few years. The current low price of gas and the persistent large price differential between gas and oil could lead to a resurgence of interest in GTL. However, the lengthy timescales involved in design, approval, construction, and start-up of new large plants are likely to lead to slow growth in production. GTL production may likely rise from about 50 kbpd in 2009 to almost 200 kbpd in 2015 and to nearly 750 kbpd in 2035.9

GEOPOLITICS OF GAS Gas has been increasingly occupying a prominent space in energy economics. Natural gas continues to be favoured as an environmentally attractive fuel compared to other hydrocarbon fuels because of its lower carbon intensity. It continues to be preferred also because of low capital costs and favourable thermal efficiencies in power generation. According to the EIA, in 2009,10 the total natural gas production (including non-conventional tight gas, shale gas, and coal bed methane) was 105.6 trillion cubic feet (tcf), led by Russia and USA that produced 20.6 tcf and 20.1 tcf, respectively (Table 5). The lead of Russia and USA in gas production will continue through 2035.

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Energy Security and Economic Development in India

Table 5

World natural gas production by region/country from 2008–35 (tcf)

Region/country

History 2008 2009

2015

Projections 2020 2025

2030

Average 2035 annual per cent change 2008–35

20.2

20.1

22.4

23.4

24.0

25.1

26.4

1.0

9.4

8.4

7.7

7.8

6.8

6.8

6.6

–1.3

10.9

11.7

14.8

15.6

17.1

18.4

19.8

2.3

5.0

5.6

7.0

7.7

8.3

8.7

9.0

1.5

4.0

3.6

4.3

4.3

4.4

4.4

4.4

0.4

OECD USA Conventional Unconventional Canada Conventional Unconventional

2.1

2.0

2.7

3.4

3.9

4.3

4.5

3.0

10.6

10.1

8.1

7.5

7.5

7.9

8.3

–0.9

10.5

10.1

8.1

7.1

5.5

6.2

6.0

–2.1

0.0

0.0

0.1

0.3

0.9

1.7

2.3

19.1

Australia/New Zealand

1.7

1.8

2.6

3.1

3.8

4.8

5.7

4.5

Other OECD

1.9

2.0

2.1

2.0

2.0

2.1

2.4

0.9

Total OECD

40.6

39.6

42.3

43.7

45.5

48.7

51.8

0.9

23.4

20.5

23.0

24.9

27.3

29.5

31.2

1.1

Europe and Central Asia

7.1

5.7

7.4

7.7

8.1

8.7

9.2

1.0

Iran

4.1

4.6

5.7

6.9

7.8

8.6

9.4

3.1

Qatar

2.7

3.2

6.3

7.0

7.4

7.8

8.1

4.1

Other Middle Eastern countries

6.7

6.6

7.8

8.5

9.4

10.4

11.3

2.0

North Africa

5.8

5.8

7.4

8.5

9.3

10.0

10.4

2.2

Other African countries

1.7

1.4

2.4

2.6

2.9

3.3

3.7

3.0

China

2.7

2.9

3.1

3.7

4.7

6.0

7.3

3.8

Conventional

2.7

2.9

2.5

2.3

2.2

2.1

2.0

–1.0

Unconventional

0.0

0.0

0.5

1.4

2.6

3.9

5.0

–

10.0

10.4

12.5

13.7

14.9

16.2

17.3

Europe Conventional Unconventional

Non-OECD Russia

Other Asian countries

2.0 Contd...

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Table 5 Contd... Region/country

Central and South America Total non-OECD

History 2008 2009

5.5

4.9

16.3

66.0

Total world

109.9

105.6

Discrepancy

–1.0

–1.2

2015

Projections 2020 2025

5.8

6.6

81.3

90.0

7.5

2030

8.65

Average 2035 annual per cent change 2008–35 9.5

2.3

99.4 109.1 117.4

2.0

123.6 133.8 145.0 157.8 169.2

1.6

0.4

0.5

0.5

1.0

0.5

OECD – Organization for Economic Cooperation and Development Source EIA (Energy Information Administration). 2011. International Energy Outlook 2011. Washington, DC: EIA. Details available at

According to the EIA, India had approximately 38 tcf of proven natural gas reserves as of January 2011. Much of the expected increase comes from the Dhirubhai-6 block in the Krishna–Godavari Basin, which has an estimated potential of 11.9 tcf.11 The bulk of India’s natural gas production comes from the western offshore regions, especially in the Mumbai High complex. The prospects in the Krishna–Godavari Basin are increasing. Despite the major new natural gas discoveries in recent years, India is compelled to import natural gas. According to EIA estimates, India produced 1.8 tcf in 2010 and consumed 2.3 tcf (Figure 4), creating a gap of 0.5 tcf.12 This gap is expected to increase in the coming years, as more and more people are brought into the ambit of commercial energy. As seen in Table 6, India’s LNG imports from various countries are consistently increasing. Billion cubic feet 2500 2000 1500 1000

Consumption Production

500

20

00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10

0

Figure 4 India’s natural gas production and consumption, 2000–10 Source EIA (Energy Information Administration). 2011. Country analysis briefs: India. Details available at

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Energy Security and Economic Development in India

Table 6

India LNG imports by country (bcm)

Country Abu Dhabi

2004/05

2005/06

2006/07

2007/08

2008/09

2009/10

—

—

0.09

0.08

0.13

0.16

Australia

—

—

0.09

—

0.16

1.11

Indonesia

—

—

—

—

—

0.08

Malaysia

—

—

0.09

0.09

0.08

0.25

Oman

—

—

0.27

0.27

0.41

0.35

Qatar

3.49

6.98

8.24

9.43

8.34

7.95

Algeria

—

—

0.09

0.55

0.53

0.16

Nigeria

—

—

0.09

0.77

0.38

0.32

Trinidad and Tobago

—

—

—

0.24

0.23

0.68

Egypt

—

—

0.62

0.09

0.24

0.33

East Guinea

—

—

—

—

0.42

0.25

Norway

—

—

—

—

0.08

—

Russia

—

—

—

—

—

0.68

Others

—

—

—

—

0.17

—

3.49

6.98

9.59

11.52

11.16

12.31

Total

bcm – billion cubic metres Source IEA (International Energy Agency). 2010. Oil market outlook. In World Energy Outlook 2010. Paris: IEA. Details available at

The geopolitics of gas is much more complicated than that of oil as gas cannot be easily stored or transported over long distances. If it needs to be transported across the oceans by tankers as LNG, it has to be first sent via pipeline to a port terminal where it has to be liquefied under controlled conditions and stored in special facilities. After that, it has to be transported by special tankers to a port terminal in the destination country where it has to be converted back to gas and distributed through pipeline to the consuming countries or centres. These intricacies require complicated and capital-intensive infrastructure where the returns are realized after many years of investment. Besides, the pipelines constitute a fixed asset that cannot be used for supplying gas to any other destination. The suppliers are always concerned that once a fixed infrastructure is created, they will always play into the consumer dynamics. Similarly, consumers worry that gas supplies could be switched off as and when the suppliers want to do so. The question of security of the pipelines will also play an important role in the geopolitics. This is besides the

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transit countries which can either block the gas shipments or resort to illegally siphoning off the gas for their own requirements. There is a risk that extremist elements can always take these pipelines to ransom through threat of disruption. These issues raise substantial concerns to the security of such gas pipelines. As a high degree of mutual confidence among various parties is essential for a longterm success of a gas contract, gas deals inevitably have strong strategic geopolitical elements. Countries like Qatar, Oman, Australia, Myanmar, Afghanistan, besides Iran, Turkmenistan have acquired geopolitical significance due to these new discoveries. According to the International Energy Outlook 2011, four major natural gas producers in the Arabian Gulf—Qatar, Iran, Saudi Arabia, and United Arab Emirates—together accounted for 85% of the natural gas produced in the Middle East in 2008 (Figure 5). With more than 40% of the world’s proven natural gas reserves, the Middle East accounts for the largest increase from 2008 to 2035. The leading position of Iran, Qatar, and Saudi Arabia, which produced 4.6 tcf, 3.2 tcf, and 2.8 tcf in 2009, respectively, will continue through 2035 with an estimated production of 9.4 tcf, 8.1 tcf, and 5.2 tcf, respectively. Iran has the world’s second largest reserves of natural gas after Russia. In Eurasia, Russia will remain the dominant natural gas producer accounting for more than 75% of the region’s production throughout 2035. In 2008, Russia produced 23.4 tcf. The giant Koykta field in

Figure 5 Middle East natural gas production, 1990–2035 (tcf) Source EIA (Energy Information Administration). 2011. International Energy Outlook 2011. Washington, DC: EIA. Details available at

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Energy Security and Economic Development in India

eastern Siberia is estimated to hold 70 tcf with a capacity to produce 1.6 tcf. Turkmenistan, which already is a major producer, accounted for more than 40% of the production in this region. Substantial growth is projected for natural gas production in Africa from a total of 7.5 tcf in 2008 to 14.1 tcf in 2035. In 2008, almost 78% of Africa’s natural gas was produced in North Africa, mainly in Algeria, Egypt, and Libya. West Africa accounted for another 20%, and the rest of Africa accounted for almost 3%. Nigeria is the predominant natural gas producer in West Africa.13 China has the largest projected increase in natural gas production from 2.7 tcf in 2008 to 7.3 tcf in 2035. India has been importing small quantities of gas from Iran, Qatar, Oman as well as other sources like Algeria and Australia. Other Gulf countries like Saudi Arabia and United Arab Emirates have considerable gas reserves. In view of the above, India’s energy diplomacy on gas should predominantly focus on Gulf and Eurasia. India has to explore the possibilities of either importing or setting up joint venture profiles in gas-based fertilizer plants. Countries like Pakistan, Afghanistan, and Bangladesh have attained greater strategic importance by providing transit facilities. India’s neighbourhood diplomacy, which is plagued with political sensitivities, is further complicated because of these new strategic interests. These energy attractions have added more lustre to the dynamics of regional diplomacy and competition for political, economic, and military clout to secure gas deals. India is already in the process of developing the infrastructure along its western and eastern coasts to receive large shipments of gas from the Gulf, Myanmar, and Australia.

Gas from Myanmar Myanmar has significant gas reserves. India’s initial efforts to get access to Myanmar gas through a 1575 km long pipeline either across Bangladesh or via the north-eastern region were not successful, while China did clinch such a deal. Subsequently, India has managed to get rights to some additional offshore exploration blocks. If considerable reserves could be discovered, India should still consider construction of a gas pipeline. Myanmar is a classic example where apt geopolitical dynamics of energy play out.14

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In the quest for new sources of fossil fuels, the focus of the world community has now shifted to oil and gas reserves in the Eurasian region. Exploration of projects in a large scale is being undertaken in this region; this has led to a gradual shifting of ground for oil diplomacy to Central Asia/Eurasia. India should not lag behind in engaging with energy economies in this region. India’s entrenchment into the Eurasian oil and gas projects is important, not only for its energy security but also for political and strategic considerations. India and China, in their greater quest for energy, are compelled to engage in either greater diplomatic tussles or cooperation in this region. The political battleground between India and Pakistan is also slowly shifting to Central Asia/Eurasia to have greater leverage in Afghanistan, a major transit country of energy resources. While India has time-tested relations with Russia, a comprehensive energy dialogue with Russia, which also has the capacity to play a crucial role in Eurasian energy dynamics, has to be initiated. India should also play a key role in the geopolitical stability and security of Eurasia to safeguard its energy interests in the region.

Iran–Pakistan–India Pipeline India has huge diplomatic challenges in negotiating the Turkmenistan– Afghanistan–Pakistan–India and Iran–Pakistan–India pipelines from Eurasia and Iran, respectively. The Iran–Pakistan–India (IPI) pipeline is estimated to provide Pakistan and India with huge gas supplies for many decades. Although this project was launched in the 1990s, there have been long years of negotiations on pricing and delivery terms. While the negotiations between India and Iran/Pakistan are pending, Iran and Pakistan agreed on 5 June 2009 to develop an Iran–Pakistan pipeline and considered the “part of the trilateral agreement” to supply Pakistan with 264.86 tcf per year (7.5 UK BCM) for 25 years with an extension of an additional five years if mutually agreed.15 There are several issues of concern like insufficient gas resources in Iran and safe transition through Baluchistan. Nevertheless, as a regional energy project, the IPI gas pipeline project could form the nucleus of regional cooperation arrangements between South Asia and Iran (which has become an observer of the South Asian Association for Regional Cooperation [SAARC]). This regional cooperation project could act as an important forum to form linkages with other regional associations like the Shanghai Cooperation Organization (SCO) (where Iran,

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Energy Security and Economic Development in India

Pakistan, and India are observers), Association of Southeast Asian Nations (ASEAN), and Indian Ocean Rim Association for Regional Cooperation (IOR–ARC). However, India needs to carefully monitor how the fast-changing dynamics of gas are evolving.

Turkmenistan–Afghanistan–Pakistan–India Pipeline Another gas pipeline proposal that may entail substantial benefits to India is the Turkmenistan–Afghanistan–Pakistan–India (TAPI) gas pipeline. This proposed pipeline of 1680 km with an estimated cost of $8 billion aims to deliver 1059.44 tcf (30 UK BCM) per year to Afghanistan, Pakistan, and India. The framework agreement states that the TAPI pipeline would be built by a consortium of national oil companies from the four nations.16 Although there are uncertainties over the extent of gas reserves available in Turkmenistan, India has already initiated its engagement. Security of such a pipeline through this politically sensitive region is a major challenge. Moreover, strategically, any gas pipeline in the region that leaves India out would pave the way for other regional players like China and Pakistan to secure long-term foothold in the region—a scenario that can complicate India’s energy diplomacy in the region. According to Sikri, “As two fast-developing, power-hungry countries in the region, India and China must have a strategic understanding on energy procurement in the region. China also holds the key to finding a viable transportation route from Eurasia to India.17 Any pipeline from Eurasia to India that does not come via Afghanistan/ Pakistan has to be routed via the Xinjiang region of China and then across the Karakoram and the Himalayan mountain ranges. Apart from considerable technical challenges, the political obstacles to such an alignment are likely to be more daunting, since the pipeline route would have to cross Aksai Chin, an area contested between India and China. Although such ideas seem to be riddled with political sensitivities, such an understanding should not be ruled out considering the huge energy supplies and economic benefits that could be accrued in the long term. A gas pipeline project across the Karakoram–Himalaya ranges could lead to the development of a major energy corridor between Eurasia and the Indian Ocean. Although technically much more challenging, there is the possibility

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that oil pipelines could be built along the same alignment as the gas pipeline, but in the opposite direction. That could be of great interest to China, which is apparently in discussions with Pakistan on creating an energy corridor for oil from the Gulf to China via Pakistan. India could offer a similar transit oil corridor. An Indian transit route may not only turn out to be more secure and technically feasible but also have the advantage of creating a mutual dependence—Chinese dependence on India for transit of Gulf oil destined for China, and Indian dependence on China for transit of Eurasian gas destined for India. Both China and India would gain from cooperating in creating a north–south energy corridor from Eurasia to the Indian Ocean. The two countries would get assured energy supplies for their own domestic needs and become central to the energy flows out of Eurasia”. Sikri opined that India too stands to gain enormously from such a project. Eurasian–Indian pipeline projects would not only boost India’s energy security but also bring India many significant longterm advantages. The availability of a cheap and plentiful clean energy source like gas would go a long way towards resolving the growing problems of deforestation and environmental degradation in the Himalayas.18 Sikri further suggested that “another complementary approach would be to set up hydropower plants in Kyrgyzstan and Tajikistan, both of which have enormous hydropower potential, for export of electricity to South Asia. It might be cheaper and simpler to import hydropower from north of the Himalayas than to set up hydropower projects in the Himalayas. The latter has not taken off meaningfully because of political hesitations on part of Nepal, apart from environmental concerns, geological surprises, and the problem of resettling displaced populations. A successful Eurasian energy project is possible if Russia, as a major energy producer, develops a strategic understanding with India and China, both major energy consumers. Perhaps this could constitute a concrete project within the India– China–Russia trilateral framework, where energy is an agreed area of cooperation. It could also be considered subsequently within the framework of the SCO, where Russia, China, Kazakhstan, Uzbekistan, Kyrgyzstan, and Tajikistan are members, while India, Pakistan, Iran, and Mongolia are observers. In this way, all the countries involved in

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the SCO are either major producers or consumers of energy, or key transit countries in energy flows between Eurasia and South Asia”.

SHALE GAS REVOLUTION AND ENERGY DIPLOMACY Geopolitics and energy diplomacy will be in a different plane for unconventional gases (shale gas, tight gas, and coal bed methane). Shale gas is estimated to be a game changer in the energy market. The emergence of new technology called hydraulic fracturing or horizontal drilling (Figure 6) has greatly facilitated extraction of natural gas from low permeability shale rock formations deeper in the earth. The estimates of technically recoverable shale gas resources are 6622 tcf, comparable to the technically recoverable natural resources of 16 000 tcf. China leads the world with 1275 tcf of technically recoverable shale gas followed by the USA, Argentina, Mexico, Australia, Canada, Libya, and Brazil. The USA has had the greatest success in developing its shale gas resources to date with production

Figure 6  Hydraulic fracturing Source

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increasing from 1 tcf in 2006 to 4.8 tcf in 2010, which is 23% of the natural gas production in the same year. It is estimated that by 2019, shale gas production would amount for 50% of the natural gas production of the USA. In 2010, the shale gas production of the USA was 19.5 billion cubic feet a day, which is 60% more than that of Qatar in 2010.19 While natural gas reserves are estimated at 38 tcf, the technically recoverable shale gas resources in India are 63 tcf out of the total estimated reserves of 290 tcf.20 India will occupy the 14th place in the world’s technically recoverable shale gas resources (Table 7). The advent of shale gas is poised to alter the dynamics of the three largest economies—the USA, China, and India—in 2035. While the USA would be largely energy independent, China and India is estimated to account for between 50% and 60% of the global energy imports. Shale gas exploration in countries like France, Poland, Turkey, and Morocco could marginalize the clout of Russia in the European energy markets. At the same time, increased import requirements from China and India may strengthen energy bonds between China and Russia as well as India and Russia. India’s energy linkages with Indonesia and Australia would be further reinforced. The oil revenues of the Middle East would be predominantly from Asia and Europe. The energy independence of the USA could alter energy strategies in the Middle East. The lesser dependence of the USA on the Middle East may increase the bargaining power of India for the energy resources from the Middle East. Gas prices in the USA have already fallen to $2 per million British thermal units (MBtu), whereas gas prices in India are hovering around from $4.25/MBtu to $8/MBtu. There are estimates that gas prices in the USA will further come down to $1/ MBtu. With this new price dynamics in the USA, the prospects for import of LNG from the USA appear brighter in the future. India needs to evolve its strategies in this emerging scenario. Since the USA is the only country that possesses shale gas technology, India needs to engage the USA for technology transfer. The strategic relationship between India and the USA could be further energized through cooperation in this arena. A beginning has already been made in this direction through signing of a memorandum of understanding in November 2010 for shale gas resource assessment as well as for commencing technical studies for its exploration. The RIL has outlined plans to spend $4–4.5 billion by 2014 on three US shale gas joint ventures it entered into last year. India has to step up

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Energy Security and Economic Development in India

Table 7

Estimated shale gas technically recoverable resources for select basins in 32 countries, compared to the existing reported reserves, production, and consumption during 2009

Country/ continent

2009 natural gas market (1) Proven natural Technically (tcf, dry basis) gas reserves (2) recoverable Production Consumption Imports (tcf) shale gas (exports) resources (tcf) (%)

Europe France

0.3

1.73

98

0.2

180

Germany

0.51

3.27

84

6.2

8

Netherlands

2.79

1.72

66

49.0

17

Norway

3.65

0.16

2 156

72.0

83

UK

2.09

3.11

33

9.0

20

Denmark

0.30

0.16

91

2.1

23

Sweden

—

0.4

100

—

41

Poland

0.21

0.58

64

5.8

187

Turkey

0.3

1.24

98

0.2

15

Ukraine

0.72

1.56

54

39.0

42

Lithuania

—

0.10

100

—

4

Others (3)

0.48

0.95

50

2.71

19

North America USA (4)

20.6

22.8

10

272.5

862

Canada

5.63

3.01

87

62.0

388

Mexico

1.77

2.15

18

12.0

681

China

2.93

3.08

5

107.0

1275

India

1.43

1.87

24

37.9

63

Pakistan

1.36

1.36

—

29.7

51

Australia

1.67

1.09

52

110.0

396

South Africa

0.07

0.19

66

—

485

Libya

0.56

0.21

166

54.7

290

Tunisia

0.13

0.17

26

2.3

18

Algeria

2.88

1.02

183

159.0

231

Asia

Africa

Table 7 Contd...

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Table 7 Contd... Country/ continent

2009 natural gas market (1) Proven natural Technically (tcf, dry basis) gas reserves (2) recoverable Production Consumption Imports (tcf) shale gas (exports) resources (tcf) (%)

Morocco

0.00

0.2

90

0.1

11

Western Sahara

—

—

—

—

7

Mauritania

—

—

—

1.0

0

Venezuela

0.65

0.71

9

178.9

11

Colombia

0.37

0.31

21

4.0

19

Argentina

1.46

1.52

4

13.4

774

Brazil

0.36

0.66

45

12.9

226

Chile

0.05

0.10

52

3.5

64

0.00

100

—

21

—

—

62

26.5

48

South America

Uruguay

—

Paraguay

—

Bolivia

0.45

Total of above areas Total World

— 0.10

346

53.1

55.0

(3%)

1 274

6 622

106.5

106.7

0%

6 609

—

Source  EEIA (Energy Information Administration). 2011c. World shale gas resources: an initial assessment of 14 regions outside the United States. Details available at

its efforts for strengthening cooperation in this area. Having already signed a nuclear deal, India’s engagement with the USA will be largely shaped by energy diplomacy in the years to come through technology transfer, joint explorations, import of coking coal, clean coal, shale gas, and other unconventional resources of energy. India also needs to evolve a suitable strategy on how to deal with the world of shale gas, particularly with the neighbouring countries of China and Pakistan. Since Pakistan has also got 51 tcf of shale gas bordering the shale beds of Rajasthan, India needs to evolve a strategy in the wake of sensitive relations between both the countries.

GEOPOLITICS OF COAL While coal remains India’s principal source of commercial energy with large deposits, due to the low quality and high ash content, it

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Energy Security and Economic Development in India

is not suitable for the steel industry. The gap between the demand and supply is widening. During the Twelfth Five-year Plan, there will be a shortage of 265 MT of coal. This gap is likely to continue in the subsequent plans. India’s raw steel production, which was 67 MT in 2010, is poised to enhance its output varying between 165 MT and 198 MT in 2020, which will be three times higher. In 2010, India was the fourth largest importer of coal (Table 8). With the consumption of 759.698 MT in 2009, India imported 76.748 MT. According to the EIA, India surpasses Japan’s coal import level, making it the second largest importer of coal after China by 2015. The EIA also predicts that India will be importing 200 MT of coal by 2035. The IEA predicts that by 2030, coal imports will account for 37% of the total primary demand against 10% in 2009. Currently, Indonesia and South Africa together supply nearly all of India’s imports of non-coking coal. Australia caters to the vast majority of its coking coal imports. The coal dynamics in China, being the largest producer and importer of coal, will have repercussions on India.

Export–import of Coal The top five exporters of coal in 2009 were Australia, Indonesia, Russia, the USA, and South Africa. Australia also leads in exporting coking coal followed by the USA, Canada, and Russia (Table 9). The top five importers of coal in 2010 were Japan, China, South Korea, India, and Taiwan. Indonesia is the largest exporter of non-coking coal. In 2010, Indonesia exported 233 MTCC (million tonnes of clean coal) of steam coal, which is 85% of its total coal production. In 2009, Indonesia exported 32 MTCC. Of late, the Indonesian government has decided to Table 8 Top coal importers for 2010 (estimated) Country

Total of which (MT)

Steam (MT)

Coking (MT)

Japan

187

129

58

China

177

129

48

South Korea

119

91

28

India

90

60

30

Germany

46

38

8

Turkey

27

20

7

Taiwan

63

58

5

MT-million tonnes Sources ; ; ; ;

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Table 9 Top coal exporters for 2010 (estimated) Country

Total of which (MT)

Steam (MT)

Coking (MT)

Australia

298

143

155

USA

74

23

51

Canada

31

4

27

Russia

109

95

14

Indonesia

162

160

2

South Africa

70

68

2

Columbia

68

67

1

MT-million tonnes Sources ; ; ; ;

give the domestic market priority over increasing exports. India needs to look for alternative markets. Mozambique (Moatize Basin) and Botswana play an emerging role in world coal trade. It is estimated that the Moatize Basin can produce 9–14 MT of marketable coking coal and 3–5 MT of thermal coal, which is expected to enter trading in 2011. The coal exports of the USA were 35.36 MT in 2009. Despite the geographical distance and consequent high transport costs, the USA exported 13 MT of coking coal to Asia in the third quarter of 2010, compared to 4 MT in the third quarter of 2009. Since the non-coking coal of the USA is considered high quality coal, India should explore the possibilities of enhanced trading opportunities with the USA as well besides other African countries, since coking coal produced in the USA has an estimated heat content of 26.3 MBtu per tonne and a relatively low sulphur content of approximately 0.9% by weight.

Coal Reserves The total recoverable reserves of coal around the world are estimated at 948 billion tonnes (BT) reflecting a current reserve-to-production ratio of 126 years.21 Historically, estimates of world’s recoverable coal reserves, although relatively stable, have declined gradually from 1145 BT in 1991 to 909 BT (Table 10), in 2008. However, in 2009, the estimate increased to 948 BT, basically because of the new assessment of Germany’s lignite reserves. Although the overall decline in estimated reserves from 1991 to 2009 is sizeable, the larger reserve-to-production ratio for world coal indicates that sufficient coal will be available to

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Energy Security and Economic Development in India

Table 10 Region /country

World recoverable coal reserves as on 1 January 2009 (billion short tonnes) Recoverable reserves by coal rank Bituminous SubLignite and anthracite bituminous

Reserves-toproduction (years)

445.7

287.0

215.3

948.0

7.5

126.3

USA*

119.2

108.2

33.2

260.6

1.2

222.3

Russia

54.1

107.4

11.5

173.1

0.3

514.9

China

68.6

37.1

20.5

126.2

3.1

40.9

Other non42.2 OECD European and Eurasian countries

19.1

40.1

101.4

0.3

291.9

Australia and New Zealand

40.9

2.5

41.4

84.8

0.4

191.1

India

61.8

0.0

5.0

66.8

0.6

117.5

6.2

0.8

54.3

61.3

0.7

94.2

34.7

0.2

0.0

34.9

0.3

123.3

Other nonOECD Asian countries

3.9

3.9

6.8

14.7

0.4

34.4

Other Central and South American countries

7.6

1.0

0.0

8.6

0.1

95.8

Canada

3.8

1.0

2.5

7.3

0.1

97.2

Brazil

0.0

5.0

0.0

5.0

0.0

689.5

2.6

0.6

0.1

3.4

0.0

184.5

Africa

#

Others  #

2008 production ratio

World total

OECD Europe

*

Total

 Data for the USA represent recoverable coal estimates as on 1 January 2010.  Includes Mexico, the Middle East, Japan, and South Korea.

Source EIA (Energy Information Administration). 2011. International Energy Outlook 2011. Washington, DC: EIA. Details available at

meet demand well into the future. Although coal deposits are widely distributed, 79% of the world’s recoverable reserves are located in five regions: the USA (27%), Russia (18%), China (13%), non-OECD Europe and Eurasia outside of Russia (11%), and Australia/New Zealand (9%).

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In 2008, the five regions together produced 5.4 BT (106.1 quadrillion Btu) of coal, representing 72% of the total world coal production by tonnage and 75% on a Btu basis. By rank, anthracite and bituminous coal account for 47% of the world’s estimated recoverable coal reserves on a tonnage basis, sub-bituminous coal accounts for 30% and lignite accounts for 23% (Table 10). Getting cheaper coal requires possession of mining leases in various parts of the world. Since transportation costs of high quality coal are very high, setting up joint ventures in the steel sector in the respective countries where coal mines are allocated is a viable option. In view of this alarming scenario, India has to step up its coal diplomacy to secure coal supplies through overseas acquisitions.

GEOPOLITICAL DYNAMICS IN LATIN AMERICA AND CARIBBEAN COUNTRIES Latin America and Caribbean countries are simultaneously emerging as new bastions of both non-renewable and renewable energy sources. Consequently, energy has become one of the key currencies in Latin American politics. In a succinct analysis of Latin America’s “petro-politics”, Chilean political scientist Genaro Arrigada writes, “Potential confrontations over oil and gas supplies and transportation networks have become geopolitical flashpoints…. As new reserves are discovered and old ones exhausted, the balance of power among states evolves”. Bolivia, long regarded as the poorest country in the Latin American region, has been emerging as an important country in the region’s politics with the discovery of huge deposits of iron ore and other minerals besides hydrocarbons.22 Oil revenues have become major instruments of Venezuelan foreign policy. Brazil has emerged as the world leader in the production of biodiesel and ethanol. Countries like Suriname, Guyana, and Argentina are offering huge tracks of land for agricultural farming to develop biofuels. Ecuador has huge reserves of oil. The Cuban energy sector is gearing up for liberalization and global exploration. Caribbean countries like Trinidad and Tobago have great potential in resources of gas and oil. These countries are also offering huge stretches of land for large-scale agricultural farming to cultivate biofuels. Countries like Bolivia, Peru, and Chile

236

Energy Security and Economic Development in India

are offering potential markets for minerals that have greater utility in the development of renewable energies. The energy resources have either activated or reorganized trade and economic groupings like the Bolivarian Alliance for the Peoples of Our America (Spanish: ALBA), Central American Integration System (Spanish: SICA), Common Southern Market (Spanish: MERCOSUR) or Union of South American Nations (Spanish: UNASUR). In fact, ALBA is building bridges between South America, Central America, and the Caribbean countries. Moreover, Latin American countries have also developed special or strategic relations with other states in the region. Chile has a strategic relationship with Mexico. Venezuela has forged a special relationship with Argentina by purchasing Argentinean bonds. In view of these emerging geopolitical dynamics of energy, India has to deepen its engagement with this region to secure its energy interests in fossil fuels, renewable energy sources, and minerals. In recent years, India has embarked on a “Focus-LAC” agenda to strengthen and diversify its relations.23 Several cooperation agreements for acquisition of hydrocarbon blocks and mines have been signed with Brazil, Venezuela, Columbia, Cuba, Trinidad and Tobago, Chile, and Bolivia. An agreement for cooperation in the peaceful uses of nuclear energy with Argentina was also initiated. While India has made considerable progress regarding cooperation with the hydrocarbons and minerals sector in this region, longterm strategic partnerships are sustainable only when multifaceted relationships with the region are built. Since India does not have deep historical and geographical linkages with the countries in the Latin American region, India needs to strengthen its institutional linkages and people-to-people contacts. This has to be achieved through its participation in capacity building in the region and by strengthening its cultural bonds, which Indian diplomacy in the region is already actively engaged in. The Caribbean region, being home to a vast Indian diaspora, has the advantage of having close historical and cultural ties. India needs to reinvent linkages for mutual prosperity and beneficial partnerships.

GEOPOLITICS OF RENEWABLE DIPLOMACY FOR TECHNOLOGY

ENERGY

RESOURCES:

As the world is gearing up for another transition from fossil fuels to renewable energy due to the finite nature of these resources with no

.

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237

major adverse environmental aspects, new challenges of geopolitics are emerging. The transition towards more renewable energy in countries and regions entails more than a mere change in the energy mix. It leads to the conversion of energy industry based on fossil fuels to a technically driven renewable energy industry. Most technologies in the renewable energy sector are so complex and intricate that international cooperation is more challenging. In a world in which renewable energy would dominate as the most important source of energy, those relations could potentially be very different compared to geopolitical dynamics of conventional energy, as they create new bastions of energy. In the arena of biofuel exports, the following countries are in the forefront: Argentina, Australia, Belarus, Brazil, Canada, Hungary, Kazakhstan, Nigeria, Romania, Russia, Turkey, Ukraine, and Uzbekistan. If these countries invest in biomass and biofuel applications, they could play a greater role in the geopolitical relations, which will be shaped around biofuels. At present, one can already detect a fierce competition between the USA and Brazil for control over biofuels and, more importantly, access to markets. Regions with a high production potential for bioenergy can gradually decrease their dependence on the Middle East and unstable countries in the world (for example, Nigeria) and become themselves exporters of energy. In wind energy, Germany has already emerged as the new leader in the world. Japan has become a leading producer of solar energy. Denmark has demonstrated its expertise in smart grid systems, while Iceland has pioneered in geothermal energy. However, the linchpin in the geopolitics of renewable energy is the innovation and control of technologies, wherein the USA and European countries are still dominant. Another key element in the geopolitical dynamics of renewable energy is the new dependencies on the outside world for natural resources such as lithium (which is used in batteries of electrical cars) or silicium (which is used in solar panels). This can be a trump card in shifting the geopolitical tendencies in the renewable energy. The production of wind turbines and electric vehicle batteries is dependent on rare earth materials. The magnets used in wind turbine gearboxes require neodymium, a rare earth element. The increasing demand for neodymium may strain production and lead to dependency on insecure supplies. Half of global lithium reserves are located in Bolivia,

238

Energy Security and Economic Development in India

although they are not yet economically recoverable.24 The majority of the world’s recoverable reserves are to be found in neighbouring Chile. China also has important lithium reserves, which it is using strategically. Solar photovoltaic panels require, among other elements, indium, gallium, germanium, and silicon (Hodum 2010). The USA depends completely on imports for gallium and indium and for over 80% of its germanium. In addition to China, these materials are also located in Central Africa and Russia. Although India was a nascent state when geopolitical dynamics of fossil fuels were evolving, it cannot afford to lag behind in defining its position in the emerging geopolitical dynamics of renewable energy. Even though India has lower costs for assembly and construction of renewable energy projects, it needs to intensify its diplomatic discourse to ensure transfer of know-how, flow of investments, and access to critical minerals. At the same time, the country needs to gear up for new challenges it will encounter on intellectual property rights (IPR), tariff barriers, and trade disputes. Concerns over IPR issues pose a barrier to clean technology diffusion. India needs to embark on an intense diplomatic activity in these multilateral organizations with a view to carry forward its energy and economic diplomacy befitting its role as an emerging economic power. There would be new challenges in bilateral and multilateral organizations where standards and specifications will be used as leverage against the interests of developing countries like India. Indeed, the shifting geopolitical landscape has already resulted in the emergence of new organizations designed to drive clean energy. In addition to existing international organizations like the World Bank and the United Nations Environment Programme, new multilateral organization have been launched to support continued deployment of renewable energy throughout the developing world. The most notable is the emergence of the International Renewable Energy Agency (IRENA), the first agency dedicated to advancing clean energy worldwide. The IRENA charter tasks the agency with delivering support to governments on renewable energy policy, capacity building, and technology transfer.25 Clean energy is also compelling the emergence of new regional blocs or groupings. For example, France has been leading an effort called the Mediterranean Solar Plan to build concentrated solar bulbs across North Africa to develop capacity and expand energy security

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in countries like Jordan and Morocco and facilitate export of green electricity in Europe. Global ethanol investments, for example, have begun to deliver some competition to the OPEC. In sum, India remains to be energy deficient in the near future and continues to depend on energy imports particularly hydrocarbons. At present, two-thirds of India’s imports come from the Gulf countries and 15% from Nigeria. Gulf countries will continue to maintain their lead position in the years to come. The Gulf countries that are not major producers of oil have been endowed with significant reserves/ production of gas. While India has excellent relations with the Gulf countries where there is a large presence of the Indian community, there is a need to deepen and diversify these relations. India, being a rising international power and an established democracy, has to take new initiatives to play a crucial role in the changing political and security landscape of the Gulf countries. Unconventional oils are offering new opportunities particularly from non-OPEC regions, led by North America. These developments offer opportunities for India to shape its engagement with both North American and South American continents. The geopolitics of gas is different from the geopolitics of oil. While gas reserves are predominantly concentrated in the extended neighbourhood, gas pipelines are viable and more economic options. Towards this purpose, neighbouring countries play a critical role as transit points in these initiatives. Political and security sensitivities have to be addressed expeditiously to ensure our energy security. Strengthening regional cooperation is the need of the hour to tap hydroelectric power, lay gas pipelines, and for joint exploration of shale gas. Geopolitical dynamics play a crucial role in acquisitions of energy resources. Decisions on energy sector acquisitions/pipelines are taken not solely on the basis of commercial and technical considerations. Multifaceted and multisectoral engagement underpinned by sociocultural links can only secure such interests in the long run. With the advent of the renewable era, the geopolitical dynamics are fast changing. India is highly endowed with renewable sources of energy like sunlight, wind, and biomass. However, again there is a great deficit for technology and rare earth minerals to explore them at optimum levels. India’s diplomacy has to be focused on these issues. While acquiring gas resources from far away countries, India has to embark on setting up joint ventures in fertilizer industries.

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Energy Security and Economic Development in India

Although India has vast resources of coal, it has to import both coking coal and non-coking coal. Coking coal imports are needed as India does not have good quality coking coal. The import of noncoking coal is essential as the exploration of vast domestic coal is plagued with several geographical, environmental, and technological problems. Coal diplomacy has to focus on acquiring huge tracts of mining land and infrastructural problems. India has a huge potential for shale gas but does not have the technology. Diplomacy in this arena has to be focused on acquiring technology particularly from the USA, which is a leader in this arena. Some of the countries hitherto insignificant are gaining importance. New issues like climate change, international standards and specifications must be addressed in an institutionalized manner, which are acceptable to and convergent with the needs of a majority if not all the countries of the world. India needs to gear up its diplomatic synergies to sustain and diversify its engagements in this arena at bilateral, regional, and multilateral levels. In the immediate future, the country needs to continue its economic diplomacy relating to oil and gas while simultaneously adopting new strategies to deal with the world of renewables. Energy transition is a long-drawn process. It took 100 years for coal to increase its share from 10% to 60% of the world’s commercial energy. Similarly, after 60 years of its introduction, oil could spill over to being used as 50% of the world’s energy. In the changing energy dynamics, every country has become important, irrespective of its size and distance. India has taken early lead in this direction by setting up a separate Energy Security Division in the Ministry of External Affairs, with a view of ensuring energy security as one of the goals of its economic and political diplomacy. However, a need has always been felt to impart specialized training to equip diplomats with tools of information and acumen in handling these emerging trends. In sum, India’s diplomacy in the years to come should be overwhelmingly shaped and driven by imperatives for obtaining India’s energy.

NOTES 1. Ebinger, C. K. 2011. Energy and Security in South Asia: cooperation or conflict? Washington, DC: Brookings Institution Press. 224 pp. 2. Planning Commission. 2011. Faster, sustainable, and more inclusive growth: an approach to the Twelfth Five-year Plan. New Delhi: Planning Commission. Details

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available at 3. IEA (International Energy Agency). 2010. Oil market outlook. In World Energy Outlook 2010. Paris: IEA. Details available at 4. Sikri, R. 2008. The geopolitics of energy security and implications for South and South-East Asia. Details available at 5. Ebinger, C. K. 2011. Energy and Security in South Asia: cooperation or conflict? Washington, DC: Brookings Institution Press. 224 pp. 6. EIA (Energy Information Administration). 2010. International Energy Outlook 2010. Washington, DC: EIA. Details available at 7. EIA (Energy Information Administration). 2010. International Energy Outlook 2010. Washington, DC: EIA. Details available at (Liquid fuels, p. 38) 8. IEA (International Energy Agency). 2010. Oil market outlook. In World Energy Outlook 2010. Paris: IEA. Details available at 9. IEA (International Energy Agency). 2010. The outlook for unconventional oil. In World Energy Outlook 2010. Paris: IEA. Details available at 10. EIA (Energy Information Administration). 2011. Natural gas. In International Energy Outlook 2011. Washington, DC: EIA. Details available at

11. Corbeau, A. -S. 2010. Natural gas in India: IEA working paper. Details available at 12. EIA (Energy Information Administration). 2011. Country analysis briefs: India. Details available at 13. EIA (Energy Information Administration). 2011. Natural gas. In International Energy Outlook 2011. Washington, DC: EIA. Details available at

14. Lugg, A., and M., Hong. 2010. Gas from Myanmar. In Energy Issues in the Asia-Pacific Region. Singapore: ISEAS Publishing Institute of Southeast Asian Studies. 348 pp. 15. Corbeau, A. -S. 2010. Natural gas in India: IEA working paper. Details available at 16. Corbeau, A. -S. 2010. Natural gas in India: IEA working paper. Details available at

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17. Sikri, R. 2008. The geopolitics of energy security and implications for South and South-East Asia. Details available at 18. Sikri, R. 2008. The geopolitics of energy security and implications for South and South-East Asia. Details available at 19. Special Report on Energy, Financial Times, 28 March 2012, Details available at 20. EIA (Energy Information Administration). 2011. Country analysis briefs: India. Details available at 21. EIA (Energy Information Administration). 2011. Coal. In International Energy Outlook 2011. Washington, DC: EIA. Details available at 22. Nolte, D., and B., Hoffmann. 2007. Latin America’s new geopolitical position and its implications for Europe. Details available at 23. MEA (Ministry of External Affairs). 2010. Annual Report 2009/10. New Delhi: MEA. Details available at 24. Hodum, R. 2010. Geopolitics redrawn: the changing landscape of clean energy. Details available at 25. Hodum, R. 2010. Geopolitics redrawn: the changing landscape of clean energy. Details available at

10 Policy Framework NEED FOR A HOLISTIC APPROACH As discussed in the previous chapters, the strategy to achieve energy security is complex and multidimensional. It is intrinsically linked to various issues: accurate assessment of domestic resources; study of past trends and understanding the precise linkage between economic growth and energy growth to estimate future requirements; measuring causal relationship between energy growth and economic growth so as to understand the nature of the policies to be framed; attaining energy efficiency; containment of environmental impact; assessment of water footprint; prudent pricing policies and geopolitical dynamics. Accurate assessment of domestic resources itself is a huge challenge. India is endowed with diverse resources but they are widely scattered all over. Such assessment requires expertise in multiple disciplines, diligent and enduring strategies. Estimating non-commercial resources is an even more difficult exercise since almost one-third of the country’s population uses various non-commercial forms of energy. Since India is an energy-deficient country, we need to depend on the imports of various sources of energy from different parts of the world. Gathering information and collection of data from the outside world is a herculean task. Acquiring such resources require multisectoral diplomatic engagement, long-term strategies besides manifestation of strong sociocultural bonds. Security and transportation of such resources involves international cooperation and collective strategy. Geopolitical dynamics and energy diplomacy

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play a crucial role in this endeavour. Bringing these resources into the country and distributing them require a specialized port infrastructure, loading and unloading facilities, storage facilities, and intelligent and integrated transportation network. Besides widening the supply alternatives, India should strive to evolve efficient supply management, enhanced energy efficiency, and optimum demand management. The quest for enduring energy systems cannot be confined to finding petroleum alternatives for the transport sector and low-carbon means of generating electricity. It should also include a set of responsible and responsive demandside solutions. These solutions must address the use of energy and water, particularly, in urban areas, new energy-industrial models (incorporating a modern understanding of industrial ecology), and advanced mobility systems. Proper awareness and incentives are to be generated at these ends to develop and use energy-efficient appliances. Prevention of energy losses in the course of transmission and distribution in itself is a huge challenge, both technically and logistically. Energy pricing mechanism plays a key role both in promoting energy efficiency and in ensuring expansion of domestic supply. It promotes energy efficiency by providing an economic incentive to shift to more energy-efficient technologies, an objective that is helped by the various non-price actions discussed above. Rational energy prices are also necessary to ensure expanded energy supply because otherwise energy producers will not generate the investible surpluses needed to fund the costs of exploration and production. Unfortunately, the structure of energy prices at present is very different from what it should be. Erroneous pricing policies not only retard growth but also cause irrational usage of the country’s valuable energy resources. Given the intricacy of the task at hand, trying out new technologies at small scale, medium scale, and large scale is essential. Science, technology, and engineering have a vital role to play in this process. In fact, they are indispensable tools for finding humane, safe, affordable, and environmentally responsible solutions. Modern day energy challenges also present a unique opportunity for motivating and training a new generation of scientists and engineers. Ensuring access to energy is also a huge challenge in view of the predominantly rural fabric of the country. Creating awareness about energy usage,

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environmental concerns, and public health risks in using unclean energy forms of energy is also a major task. In the present era or in the decades ahead, no policy objective is more urgent than that of finding ways to produce and use energy that limit environmental degradation, preserve the integrity of underlying natural systems, and support rather than undermine progress towards a more stable, peaceful, equitable, and humane world. These multiple linkages complicate the task of achieving sustainable energy security. The phenomenon of unequal access to energy is tantamount to disparities in development. Indeed, closer examination of the relationship between energy consumption and human wellbeing suggests that a more equitable distribution of access to energy services leads to balanced equitable and inclusive growth and development. Extending elementary energy services to millions of people, who now lack access to electricity and clean cooking fuels, should be accomplished in a manner that would have only a minimal impact on the current levels of petroleum consumption and CO2 emissions. Since market forces alone cannot provide solutions for the energy sector, the government has to imperatively play a dynamic role. However, our past experiences indicate that unbridled government control cannot achieve its desired objectives. These findings compel the government to reduce its role in the energy dynamics, but the government faces the following dilemmas: how much government regulation is needed and to what extent can the private sector play its role? The massive task of attaining sustainable energy security requires innovative, systematic solutions as well as new investments in infrastructure and technology. It is the paramount duty of the government to undertake this task with public–private partnership. Developed countries, which have consumed more than their share of the world’s endowment of resources and of the absorptive capacity of the planet’s natural systems, have the ability and the obligation to assist developing countries in “leapfrogging” to cleaner and more efficient technologies. Hence the domestic approach to energy security and internal policies has to be synergized with global developments and trends. As we transit from the age of fossil fuels to the era of renewable energy, we will encounter new challenges. When we entered the fossil

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fuel period, India was a young independent democracy struggling to redefine its identity, goals, and objectives. Consequent to these issues, we could not aptly adopt appropriate and timely strategies. However, we should not lag behind when we transit to the new era of renewable/unconventional resources. We need to promptly analyse the changing geopolitical dynamics in this transition period. The geopolitical dynamics within the country are evolving to be more imposing than the geopolitical dynamics outside the country due to disputes regarding land, sharing of resources, development of grids, and evolving parities between states. Free power as an instrument of electoral politics is detrimental to our efforts to achieve energy security. Unless a national debate is initiated, these issues will continue to be major irritants in our endeavour to find suitable solutions in this arena. We also need to develop appropriate technologies with special focus on research and development (R&D), engage an intense diplomacy for acquiring other technologies, and minerals that will be crucial inputs in the development of renewable energy sources. However, as we can already see, transition to the future energy mix will throw enormous challenges to international organizations and groupings in the form of standards and norms. Our diplomacy has to be reoriented and specialized to engage in these bitter turf wars that are unfolding. Thus energy is critical to human development and connects in fundamental ways to all these challenges. While each component of an energy security strategy is unique, there is a great need to have a holistic and coordinated approach to develop a grand strategy in achieving energy security.

COMPREHENSIVE SECTORAL ENERGY POLICY Since 2008, the energy strategy has been based on the Integrated Energy Policy recommended by the Expert Committee on Integrated Energy Policy headed by Kirit Parekh. The goal of the committee was to prepare an “Integrated Energy Policy linked with sustainable development”, covering all sources of energy and addressing aspects of energy security, availability, affordability, efficiency, and environmental impacts. The Integrated Energy Policy is highly commendable in many aspects. The report presents many facets of energy supply in India in a single document. It contributed for major energy policy

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discussions in the country. It also makes a wide range of policy proposals at the macro and micro levels to help meet the country’s energy goals and needs better. However, the landscape of energy is fast changing. The energy basket has been rapidly expanding both at global and national levels. Technological advancements are bringing forward new forms of energy. In view of these dynamics, there is a great need to augment this policy. While there is a provision for creation of a national energy fund, the issues relating to funding are yet to be evolved. Consequently, R&D initiatives could not take off in the energy sector. The expenditure of most of the major energy firms may not even exceed 0.1% of their turnover. The structural changes of important stakeholders, both from the private sector and the public sector units (PSUs) such as the National Thermal Power Corporation (NTPC), Bharat Heavy Electricals Ltd (BHEL), Oil and Natural Gas Corporation (ONGC), and Gas Authority of India Ltd (GAIL), Coal India Ltd (CIL), and Power Finance Corporation (PFC) could not take place. Besides, policymakers have increasingly encountered issues relating to environment and safety standards. Cheap energy sources have a major adverse impact on the environment. Clean sources like nuclear energy have health and safety hazards. Some cheap and safe sources have implications on human settlement and the sociocultural ethos. Some energy sources are safe, clean, and cheap but have somewhat confined availability. It can be assumed that no single energy source is free from deficiencies. Unless we prepare a comprehensive sectoral policy manifesting the strategy linking all the aspects mentioned above, it will be difficult to succeed in our efforts to achieve energy security. R&D policies with a strict implementation mechanism have to be spun into this policy. Resource mapping, assessments, R&D, technical evaluation, environmental issues, geopolitical dynamics, and acquisition of assets are to be undertaken sectorally. While several initiatives have been taken on different sources of energy, each initiative appears to be independent and unrelated to the other initiatives. A mechanism has to be created so that every initiative is correlated and put in relative perspective. There is also a compelling need to advocate short-, medium-, and long-term strategies. Obviously, the changes in the priorities of the energy mix cannot take place overnight. We need to compartmentalize

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the time periods in redefining our energy priorities. The questions of infrastructural developments and investments are to be earnestly addressed.

Institutional Reforms Fundamental changes in our energy sector’s institutional structure are essential. A “national energy commission” on the lines of the Planning Commission should be created comprising experts from various forms of energy, policymakers from different energy ministries and the Ministry of Environment and Forests. The commission should have both regulatory and advisory functions. At present, different ministries/departments are operating without coordination. Premier PSUs such as BHEL, NTPC, ONGC, GAIL, and CIL must be made answerable to the energy commission. Since renewable energy sources are operated greatly by the small to medium-sized enterprise (SME) sector, they should be linked to the energy commission for guidance, regulations, and information dissemination. These enterprises must be encouraged via technical and financial support mechanisms to take up commercial activities for assembly, supply, operation and maintenance of renewable energy systems, and delivery of their outputs. Responsibilities for local delivery and maintenance of decentralized renewable energy systems and their useful outputs must be handed over to the Panchayat Raj institutions, rural-based cooperatives, and local entrepreneurs. The past experiences of the Solar Electric Light Company (SELCO) of Karnataka and several smaller field experiments have proved that entrepreneurial activities pertaining to renewable energy have economically viable markets in rural areas if they are carried out with value-added services like swift delivery, installation, post-installation maintenance, and upgrade.

Energy Education Energy as a subject has to be introduced right from the school level to create awareness of the importance of energy in human life and the need to maintain prudence and efficiency in energy usage. Social edification of energy and its linkages with water and the environment has to be highlighted so as to create a conscious human behaviour towards energy and its manifestations. Apart from extending more research slots in universities, think tanks and non-governmental organizations have to be encouraged to play an active role in energy

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research and development. An “Indian energy information agency” on par with the International Energy Agency (IEA) and Energy Information Administration (EIA) of the USA has to be established to collect and disseminate information on energy and its related aspects.

Focus on R&D Given the scale and urgency of the challenge in ensuring energy security, a special and sustained focus on R&D has to be laid. A technology mission within the framework of the National Energy Commission has to be set up to encourage R&D, explore new sources and technologies, handle international standards and agencies on standards, intellectual property rights, and climate change. Private sector participation in R&D has to be invigorated further. There should be an immediate focus on the development of energy-efficient technologies in the following areas. • Batteries that can make plug-in hybrids, which are widely commercial (more robust to abuse) and can take many thousands of deep discharges without loss of storage capacity • Low-cost LED lighting with a colour rendering index, which is appealing to consumers • Tools for designing energy-efficient residential and commercial buildings • Low-cost, fuel-efficient cells that can run on natural gas for dispersed applications (home, industrial, and commercial) • On board energy generation supplements (electrolysis) • Bi-fuel engines using H2 blends • Solar technology that cuts down the consumption of water Use of applied social sciences combined with explicit policy experimentation could plausibly cause a dramatic face lift in our understanding of (1) the determinants of energy demand; (2) the effectiveness of policies designed to facilitate the adoption of energyefficient technologies; and (3) the role of efficiency improvements in moderating demand.

Demand and Delivery Management Energy efficiency measures, awareness, and prevention of energy losses are important policy initiatives in demand and delivery management.

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Boosting energy efficiency is (by definition) less expensive than procuring additional energy supplies, besides containing the adverse impact on environment. Over the last two decades, technology improvements have resulted in a modest (somewhat more than 1% per year on average) but steady decline in energy intensity. This decline, however, has not been adequate to offset the rise in worldwide energy consumption in absolute terms. The overall energy consumption has steadily mounted in nearly all nations in the world, despite the decline in energy intensity. To bring the energy intensity close to the developed countries, an action plan for the short, medium, and long terms has to be evolved. The scope of the Bureau of Energy Efficiency (BEE) has to be enlarged while bringing it into the purview of the proposed energy commission. Instead of energy efficiency promotional activities, the BEE should be a regulatory authority. A proper regulatory framework with an energy efficiency law can provide a long-lasting framework for energy policies. Instead of subsidies, tax reductions or tax holidays for the industry will be beneficial in bringing a revolution in efficient technologies. Appropriate pricing of various energy forms is a crucial element in attaining energy efficiency. Some of the policies recommended by the IEA and the World Energy Council (WEC) that have proved highly effective in different contexts should be considered. These suggestions include appliance and equipment efficiency standards; vehicle fuel-economy standards; building codes; financial mechanisms (for example, fuel taxes and tax incentives for efficiency investments); information and technical assistance programmes, including labelling of consumer products; energy audit programmes; procurement policies; support for regulatory reforms, where applicable; and support for efficiency-related research and development. Migration from incandescent bulbs to CFL is one of the best examples in the quest for energy intensity reduction.

Prevention of Energy Losses Transmission and Distribution Losses Although T&D losses fell to around 27% in 2007/08, AT&C losses, which are a true indicator of total losses, are reported to be over 30%.

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Energy Subsidies A national debate has to be initiated on the question of energy subsidies since such prices will not only cause irrational usage of energy but also deplete other precious national resources like water.

Energy Diplomacy a Key to Supply Chain Management No single energy supply option provides a “silver-bullet” solution to the world’s energy woes. The path to sustainability will surely involve, along with a heavy emphasis on energy efficiency and demand-side options, a diverse portfolio of supply resources and management. The world’s resources are finite, and choices will need to be made. The energy security of India will depend to a large extent on the efficiency of planning and management of energy supply chain. The key strategy to achieve this is to secure long-term supplies of energy at cheaper cost through resource acquisition and securing the related assets globally. As India is likely to be reliant on imports for its energy source for a considerable period, intense energy diplomacy has to occupy primacy in our foreign policy initiatives. As the decision-making process in most energy-making countries is often based on political, cultural, and ideological considerations, we need to undertake a multifaceted and multisectoral, bilateral and multilateral engagement with these countries so as to establish viable partnerships to secure our energy needs. Facilitating technology transfer from industrialized countries to developing countries is particularly important. Technology transfer is highly beneficial to rapidly expanding infrastructure, building industry, and manufacturing capacity, as penetration of energy-saving devices can “leapfrog” the industry to more efficient technologies. While the Ministry of External Affairs has already created an Energy Security Division in the ministry, a full-fledged post of secretary (energy) has to be created to further strengthen this initiative. India has already entered into several joint venture agreements but these are mostly in the oil sector. Such initiatives have to be extended into other sources of energy like gas, coal, minerals, and rare earth minerals. India should focus on small and medium gas fields abroad, which produce 2 to 4 standard cubic metres (SCM) per day and can support liquefaction and export facilities. Such gas fields should be utilized to produce fertilizers like ammonia, urea, methanol, and DHE, which

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can be imported into India. Such initiatives will lead to cutting down fertilizer subsidies, which is around `950 000 million annually. Such gas resources will also have significance in the backdrop of emerging technologies of converting gas to liquids. At the national level, a separate supply chain management is required, perhaps under the umbrella of the proposed energy commission. Various policies in vogue are to be better coordinated, and periodical evaluations have to be undertaken. The development and distribution of various forms of energy have to be integrated. Some of the worth-considering strategies, by sector, are discussed in the following sections.

SMART GRID FOR INTELLIGENT MANAGEMENT OF POWER The latest buzzword in power industry corridors is “smart grid”, which in simple terms means intelligent power generation, transmission, distribution, and management, as well as sophisticated levels of load management. The smart grid can manage power flows from variable and geographically dispersed generators to load centres, particularly in the case of renewable energy sources (such as hydro, solar, and wind). The concept of smart grid brings together the fields of communications, information technology, and the power sector to establish a comprehensive power infrastructure. Sophisticated grid monitors and controls will anticipate and instantly respond to system problems to mitigate outages or power quality problems. Smart grid technologies will facilitate identification of and response to deliberate or natural disruptions. Further, on the demand side, it envisages giving a choice to the customer to decide the timing and amount of power they consume based upon the price of the power at a particular moment of time. The smart grid also allows consumers greater control of the appliances and equipment in their homes and workplace by interconnecting the energy management systems in smart buildings, and thus enables consumers to lower their energy consumption. With the power grids across the country being required to take on electricity produced from non-traditional sources under various schemes (renewable purchase specifications and the renewable energy certificate mechanism), the need to revamp and modernize the national/regional and local grids must be one of the primary areas of investment and development. The Ministry of Power took the first step towards grid reforms when it set up the

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India Smart Grid Task Force in June 2010. There is a need to carry forward this mission rigorously.

COAL Despite the fact that coal is the most important source of energy in the country, this sector has been facing certain challenges, distinctly in terms of inadequate production and inefficient mining technology. Regional mapping of the entire country should be undertaken with a time-bound schedule by the Geological Survey of India. There should also be a central legislation to ensure uniform resettlement and rehabilitation policy and expedited land acquisitions. A countrywide study needs to be carried out to classify the total coal resources in the country. While competitive bidding through e-auction has been recently introduced, there have been issues with respect to the transparency of such bidding. There is also a need to increase foreign direct investments (FDI) to 100% and permit it under the automatic route for coal and lignite mines for captive consumption. At present, there is no authentic data pertaining to actual coal consumption for captive generation. The frequent transfer of energy between the power and process plants during actual operations leads to distortion of the actual requirements of the quantity of coal for power generation. The parameters for captive generation should be reviewed and extended to important sectors like fertilizers. At present, there is no accurate methodology to assess the coal stock present in the country. Capturing real-time data on stock situation and dispatch points, including railway dispatching, should be modernized through networking of all road and railway bridges through launch of global positioning system (GPS)-enabled truck dispatch system. Inordinately delayed clearances for land, environment, and forest are the major challenges that the coal sector is facing. In order to address this problem, a coordination committee comprising representatives from the centre and the states should be set up so that a single-window system of clearances could be evolved. One of the key challenges faced by the owners of coal blocks is the lack of integrated infrastructure for evacuation of coal to their end-use plants. There is a need to create a local area development authority that could build comprehensive and integrated infrastructure facility for common use by coal block owners in the identified coalfield areas. Coal mining agencies also should be obligated to take afforestation

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through “green credits” compensating for deforestation that could be caused by mining. A coal linkage policy through fuel supply and transport agreement (FSTA) with bulk consumers, particularly with the Indian Railways, has to be developed. Development of underground mining should be encouraged with suitable incentives. The government should consider options such as cost plus pricing, cross subsidies, and fiscal incentives to improve the potential returns currently available from underground mining activities. The international dynamics of coal are fast changing. Many other countries in the Asian region led by Japan, South Korea, Taiwan, Malaysia, and Thailand are facing a massive shortage of coal. The current exporters such as China, Vietnam, and Columbia are transforming themselves to major importers in a big way, creating a new paradigm shift in favour of the supply side. The transition of China from exporter to importer will cause severe strains in the regional supply chain. The Indian supply chain blueprint should take into consideration both the domestic and regional and international scenarios (Asian region). In view of these developments, the task of the supply chain management is very challenging, and the gambits in this regard should include measures such as acquisition of coal blocks by Indian companies abroad. The Indian private sector is already in the process of acquiring assets in Indonesia, South Africa, Mozambique, Australia, and Zimbabwe through joint ventures. These initiatives have to be expanded and diversified. Local manufacturing of value-added goods such as fertilizers and diesel-based coal will ensure lower cost of value-added goods besides providing long-term access to the raw material feedstock. These initiatives will also ease pressure on domestic and imported supply of coal. At present, there is a huge infrastructure deficit causing serious impediments in the import of coal and distribution. Hence, port infrastructure as well as transport facilities for ground handling and inland transport linkages should be developed. The proposed freight corridors in India are an important step in this direction. Steep rise in petroleum prices will increase price arbitrage between hydrocarbons and coal from the current levels. In such an eventuality, coal will be chosen as a feedstock for production of ammonia, urea, dimethyl ether (DME), hydrogen, synthetic natural gas, aviation turbine fuel (ATF), diesel, and gasoline. This will increase the demand for coal at the source.

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India should make investments in emerging technologies such as underground coal gasification in which coal is gasified within the seams and is transported to the ground where it can be used as feedstock for power and other industries. This process is safe, inexpensive, and can open up huge resources of coal for mining without opening large tracks of land mass. Such initiatives will also avoid physical displacement of population and infrastructure. Apart from providing access to huge resources of energy, these technologies will contribute to reduction of emission of greenhouse gases. Emphasis should also be laid on technology development through adoption of state-of-the-art technology in both underground and opencast operations for higher coal production, productivity and improved safety, deployment of surface miners for selective mining, sizing, controlled blasting, and to avoid cyclic drilling and blasting operations. Coal bed methane (CBM) is the energy trapped in the form of CH4 gas in the interlocular spaces of coal beds. Identification, development, and drainage of CH4 will help secure additional energy resources apart from enhancing the safety of mining gaseous seams. Similarly, considerable CH4 gas is contained in coal mines, especially in underground mines. Separation and securing of this energy resource will augment the derivative energy and suppress the demand for burning coal to a certain extent. Coal to liquids Instead of burning coal, it can be pyrolized into synthetic gas (syngas), which can be further converted into liquid fuels such as clean diesel, ATF, DME, and ammonia (urea), contributing to value addition of coal apart from leading the way to clean coal utilization. There are many blocks suitable for extraction of syngas in the Barmer region of Rajasthan with deep-seated coal seams and impermeable roofs. These opportunities have to be explored.

HYDROCARBONS The global hydrocarbon production has already peaked and easyto-pump resources are shrinking. New explorations have to depend more and more on deeper reservoirs, difficult terrains, and long development cycles. As good quality crude resources are getting exhausted, the world will be left with heavy and extra-heavy crude oil

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perched in deeper and deeper horizons. Severe competition has started among nations to secure oil resources at any cost. Domestically, all the sweet crude production blocks in India have passed their prime yielding capacity and are on the decline mode. The supply chain mechanism of India to secure oil resources in the long term has to be seen in this context. Failure in strategy, planning, and execution will result in fire-fighting situations, which will result in huge costs, anxiety, and uncertainty. Most of the hydrocarbon resources are located in a politically vulnerable geographical region adding to the anxiety and uncertainty of supply. Moreover, with projected high economic growth, India will see a multifold increase in vehicular population leading to increased consumption over the next two decades. The rapid and persistent rise in oil prices in the medium to long term will seriously affect growth prospects and cause inflationary trends in the economy. The present strategy of India, which includes relying on short-term contracts for purchase of oil, paying even today a much higher basket price than the developed countries, will no longer be tenable. It is noteworthy that India is already in the process of constructing strategic crude oil storage in Visakhapatnam (1.33 million tonnes [MT]), Mangalore (1.5 MT), and Padur (2.56 MT), which are expected to be completed by October 2011, November 2012, and May 2013, respectively. This will provide the necessary flexibility in managing the short-term purchase pattern for 90 days resulting in considerable savings. There is a need to enhance this strategic reserve capacity. Moreover, unless such infrastructural facilities are connected with augmented port and pipeline distribution network, these initiatives will become redundant in due course of time. A multi-pronged approach, including acquisition of hydrocarbon resources abroad, particularly in Eurasia, Latin America, and the Caribbean region, should be the focus. Energy security dialogue should be the central percept of cooperation in the fora of Brazil, Russia, India, and China (BRIC) and India, Brazil, and South Africa (IBSA). We need to evolve a fresh strategy to deal with the changing dynamics of oil in the backdrop of new discoveries of conventional and non-conventional oil and gas. Synthetic fuels are expected to provide 10% of the transport fuel requirement of the world by 2035. Investment in such technologies will lend a huge value, not only in strengthening the value chain but also in the export of engineering services, to the global markets.

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Indian refinery sector is growing well. Earlier, most refineries were refining sweet crude oil. Of late, some refineries are being upgraded. The Jamnagar refinery of Reliance Industries Ltd is the largest refinery that deals with all types of crudes. However, other refineries should also be upgraded to handle such types of crudes so that the supply chain can be more diverse. Indian refineries are also to be reoriented to stringent product specifications. There should be greater emphasis on cleaner fuels and alternative energy sources. Adulteration of petrol, diesel, and kerosene are the biggest challenges in the distribution network. Automation of retail outlets, monitoring of movement of tank trucks, and smart card systems have to be adopted. A GPS-based vehicle tracking system on the tank trucks transporting these fuels can prevent these malpractices.

KEROSENE While the usage of kerosene has stabilized, the consumption of liquefied petroleum gas (LPG) is continuously growing. The country consumes 12 MT per annum at present, which is likely to increase to 15 MT per annum by 2015 and 20 MT per annum by 2025. The public distribution system of these products provides for about 50% subsidy. Although the increased subsidy segment may cause discomfort to the exchequer, the positive aspect is that it will wean away more and more households from using cow dung, charcoal, and wood as fuel, thus contributing to containment of environmental degradation in the immediate future. In the long run, the government should look at low-cost substitutes for these products as both kerosene and LPG are likely to gain in value in the future causing an increased burden on the exchequer. Exploring the possibility of DME as a substitute for LPG has to be studied, as it can be blended up to 30% with LPG. DME can be produced either by dehydration of methanol or directly from coal and biomass through syngas derived by their gasification. Similarly, kerosene equivalent synthetic products can be derived from Fischer–Tropsch liquefaction of syngas derived from coal and biomass or from natural gas. Such initiatives will also ameliorate the burden of huge subsidies on kerosene. As the availability of natural gas increases from the Krishna– Godavari Basin and other new sources, the pipeline distribution infrastructure network has to be meticulously planned so as to

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gradually replace kerosene and other energy resources that cause health hazards in the long run. In some rural areas, it has been a practice to use subsidized kerosene for running agricultural pump sets. In view of this, energizing agricultural pump sets by extending grid power or by providing pump sets based on renewable energy such as wind and solar power should be explored.

NATURAL GAS Recent gas discoveries worldwide have encouraged a huge exploration programme for gas. The success story of India in the KG Basin provides the required impetus. The price arbitrage between gas and oil is likely to continue. Coupled with these discoveries, the huge potential for shale gas in India could be a game changer in the Indian energy sector. Steps should be taken for the data collection and accurate assessment of this resource. The major challenges are of delays between discovery and production. Stringent regulatory framework should be developed to curtail this gap. India should launch a crash programme for enhanced investment activity in gas exploration, both in traditional and shale gases. Formulation of a shale gas policy is the need of the hour. An expert group has to be constituted to study all aspects relating to identification of a basin’s resource assessment and suggest an exploration strategy. It should participate in exploration and production of gas overseas. India should engage in technology transfer for exploring its estimated shale gas from the USA. A new policy initiative rendering certain concessions to Indian investors in shale gas all over the world has to be developed. Technology transfer is feasible only when Indian companies are encouraged to invest in the shale exploration in the USA. Besides this, it should invest in processing, transport, and distribution infrastructure to take advantage of the easy availability and cost-effective nature of the resource. We should pursue and adopt emerging technologies such as gas-to-liquids and utilization of isolated gas well production. India should revisit gas pipeline projects with neighbouring countries such as Myanmar, Turkmenistan, Kazakhstan, and Iran in view of rapid developments in this segment. It should also invest in logistics for compression/liquefaction of natural gas for transport as well as terminal facilities in Indian ports. As there are prospects for imports of gas from new regions, India needs to enhance the import capacity. Natural gas prices are likely to increase corollary to the

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price of oil and, hence, production-sharing agreements with longterm discounted price mechanisms should be followed for securing supplies. The prices of natural gas are still very high compared to many countries in the world, ranging from $4.2/MBtu to $16/MBtu in the spot market. A thorough review of the pricing dynamics has to be undertaken. As on 1 September 2010, 66.73% of the country’s population use LPG as per the 2001 census. The Vision 2015 envisages to cover 75% population by 2015 under the Rajiv Gandhi Grameen LPG Vitrak Yojana (RGGLVY). However, there are challenges in implementation that are to be addressed expeditiously. India is shifting its fertilizer production base from liquid fuels to natural gas. Yet, the demand–supply gap for gas will continue to persist for a long time. It should plan fertilizer production facilities abroad wherever captive/cheap gas is available and import fertilizers. Domestic gas can then be allocated to other manufacturing and power sectors. Technologies are emerging for the utilization of flare gas. Flare gas is both an ecological problem as well as wastage of energy. Application of such technologies, which turn a problem to a solution, will strengthen the energy supply chain.

GAS HYDRATES Gas hydrates are huge reserves of methane tucked in the sea bed. India, which is one of the pioneers in this field, is bestowed with such resources near Andaman Islands. It is generally felt that exploration and exploitation of hydrates will be a long-term option. The exploitation of gas from gas hydrates is currently not available anywhere in the world as research is going on. However, there are recent developments, like the exploratory drilling by South Korea that could achieve some breakthroughs in this arena. India should also set up a task force for exploration and exploitation of hydrates at an early time frame. A memorandum of understanding was recently signed between India and Germany for research on methane production from gas hydrates through carbon dioxide sequestration.

NUCLEAR POWER The signing of the nuclear 123 Agreement with the USA will provide access to state-of-the-art technology, engineering components

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as well as raw material. This will hopefully solve the problem of obtaining raw material. However, India should proactively acquire raw material resources. Such resources are available particularly in Africa, at cheaper costs. A buffer stockpile of U3O8 for two–three years’ requirement should be maintained to safeguard against steep price fluctuations. India should strengthen the domestic exploration programme for finding new uranium deposits to protect itself from any changes in the international dynamics, which will affect the supply of raw material feedstock. R&D facility has to be set up to develop technology to avail the vast thorium deposits in the country. In the wake of the Fukushima nuclear disaster, safety aspects of these plants have to be reviewed thoroughly and adequate caution has to be exercised while setting up new plants.

HYDROPOWER There is a huge potential for hydro energy in India, particularly in the north and eastern regions apart from the bordering countries such as Bhutan and Nepal. Only 23% of India’s hydropower potential, estimated at 145 320 MW, has been harnessed. Several initiatives that are being taken under the new Hydro Policy 2008 have to be accelerated up. An action plan should be made for harnessing the remaining capacity and developing the largely unexploited capacities of Nepal (83 000 MW) and Bhutan (30 000 MW) in cooperation with these countries. The exploitation of this clean resource is currently limited by lack of physical and evacuation infrastructure, funding, as well as environmental concerns in a geophysically fragile region in the absence of a detailed study on the impact of hydropower projects. Although major projects in collaboration with these countries have begun, such cooperation has to be further strengthened, particularly in view of India’s special relationships with these countries and also for the ensuing energy security of the region itself. Hydrological and geophysical mapping has to be updated at the micro level in potential zones to study the likely impact of projects on the environment as well as the geophysical stability of the area. New technologies are rapidly emerging in hydrokinetics, which will help to use running water and tidal movement in estuaries, creeks, and lagoons. These technologies, being clean and renewable, will

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go a long way in strengthening the supply base of clean energy. A technology mission consisting of the River Water Commission, Oceanography institutes as well as marine scientists should be formed to assess potential sites, check feasibility, and provide policy support to accelerate the process. New technologies are also emerging for harnessing ocean waves and other hydrokinetics. The technology mission can undertake all such studies.

WIND Although the recent tariff support of `0.50 per kWh announced by the Government of India is a good move, more measures are needed to make wind generation viable. The main problem with wind in India is that it is low, light, and seasonal, resulting in low power load factor (PLF). Current technology has been developed for high density, speedy winds blowing round the year in Europe and North America. Indigenous technology development has to take place to suit Indian conditions. Bilateral and tripartite agreements focusing on such research with other countries like Germany, USA, and Norway will help to develop specific technologies for India. The best wind potential sites in various states are located in remote locations. However, since grid infrastructure is often insufficient to transport wind power to load centres, the power output needs to be consumed within the regional or national power grid. Large-scale wind power projects are thus extremely necessary, and the lack of adequate evacuation capacity is one of the major issues that need to be addressed in grid transmission planning (GTP). Despite these shortcomings, with proven wind turbine technology, India has the potential to become a global manufacturing hub (GWEC). A new policy approach is needed to realize this potential. A proper focus can deliver quick and cost-effective results in strengthening the energy supply chain in a big way. This will also help the country to mitigate the problems of carbon footprint and facilitate achieving the goals set at the Copenhagen Summit.

SOLAR ENERGY Creation of a 20 GW installed capacity under the Jawaharlal Nehru National Solar Mission (JNNSM) will go a long way in validating

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Energy Security and Economic Development in India

the technology, building infrastructure, and reaping clean energy benefits. However, the high capital cost, low PLF, and the compulsion for import of most of the components may slow down implementation. Moreover, there is no clarity on the tariff structure in Indian states to make the projects feasible. Instead of a large allocation of funds for much required R&D, the JNNSM has to spend most of the money on tariff support as well as capex subsidy. The task of the mission has to be suitably modified to create enough funding for basic research, which will result in long-term advantage for the country as intellectual property rights will lie within our power.

BIOMASS India is a populous and agricultural country and, hence, bears huge potential for biomass-based energy. Recent studies have shown that the addition of biomass to coal during gasification and liquefaction will yield encouraging results and improve the efficiency of the gasification process. Hence, this option should be incorporated and promoted in coal-to-liquid plants. The best option to use biomass is to gasify it under controlled conditions. The warm gas produced should be cleaned to remove impurities; the CH4 content should be reformed into CO and hydrogen to eventually produce syngas. Syngas can be converted into valuable liquids and other products such as high purity diesel, ATF, DME, hydrogen, and ammonia. The main thrust of the task is to build a sturdy supply chain for collection, consolidation, and packaging of the biomass for transport and utilization. Village groups, urban management authorities, and forestry should come together to manage and use biomass. However, the low-end model would be to utilize the biomass for generation of electricity. India should take advantage of the new technologies that are being developed, which directly convert the cellulose in the biomass into high value useful liquid products, which will further facilitate its utilization.

GEOTHERMAL The conversion of geothermal energy into power involves drilling of holes deep into the earth, where the high magmatic temperature can be accessed at a shallow depth. Water is pumped into the holes,

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which is converted into high pressure steam due to the prevailing high temperatures in the strata and such steam is brought out to the surface. The steam is used for running turbines and generating power. The geothermal potential in India is limited and confined to the Himalayan region where there is high tectonic activity. However, this pool of energy can best serve remote and far-flung areas in this region that need locally generated power, as it is not feasible to transmit power over a long distance because of the difficult terrain and isolated communication. A study to identify potential sites has to be taken up by agencies such as the National Geophysical Research Institute (NGRI) for the benefit of the power generation industry to facilitate new capacity creation. As this region is tectonically assailable, constant monitoring of the functioning of such plants will be mandatory.

BIOFUELS Biodiesel and ethanol were considered major options in the energy supply chain a few years ago. However, this perception is changing as the world polity is divided over the question as to whether food crops such as maize, oilseeds, and other edibles can be allocated for producing biodiesel and ethanol when there is a chance that the food security of the world might be threatened in the coming years. Growth in population and consumption patterns is creating this insecurity and such allocation of food for energy is coming increasingly under criticism. The shrinking of arable land and depletion of water resources is limiting agriculture production, thus also restricting the option of using food for fuel. This factor applies more stringently to India with a large population and limited arable land and water. The only viable option is to use non-edible oils and grains for the production of biodiesel and ethanol, which can be used as transport fuel source. Recent tests have shown that biofuels, when mixed with synthetic ATF, will be very effective in controlling pollution and improving engine performance. Hence, such fuels have to be confined to special requirements for maximizing benefits. Nevertheless, the policy recommendations made by the subgroup on biofuels for transportation programme in the Twelfth Five-year Plan are worth considering. The above policy suggestions can be summarized into short-term, medium-term, and long-term measures.

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Energy Security and Economic Development in India

Short-term Measures Setting up an “energy commission” in line with the Planning Commission to develop strategies with both regulatory and advisory functions should be initiated immediately. Establishing an “Indian energy information agency” for resource assessment and data collection also has to be undertaken in the immediate future. Optimization of Power Generation Since power generation is the key in supply chain management, focus should be laid in strengthening this sector. The capacity utilization in the generation area is still low owing to factors such as inadequate feedstock (coal and gas), insufficient grid connectivity (wind), and shortage of power equipment. These gaps can be easily closed to enhance the electric power availability, which will in turn save consumption of expensive liquid fuels. Special emphasis should be laid on gas-based and biomass-based power plants. Supercritical and ultra-supercritical technologies in power generation can reduce coal requirement in power generation. CIL is not entering into fuel supply arrangement for more than 50% of the requirement of thermal plants. CIL should expedite this mechanism to enable power producers to procure a mix of domestic and imported coal consistent with their technical capacities. Open cycle, gas-based plants should be set up to meet peak demand. Differentiated tariff for peak and off-peak supply will encourage investors to build open cycle, gas-based plants. Incentives should be evolved to encourage LNG-based power plants. Differential peak power tariff rates should be notified to restrict demand at peak hours. Training of skilled personnel should be promoted through the adoption of one ITI per plant. Environmental clearances and issues relating to acquisition of land are major hurdles in implementing projects. A task force to clear such issues will go a long way in addressing these problems. Evacuation of power from the north-eastern region should be expedited. According clearances of land to lay high-voltage transmission lines in the Chicken’s Neck area should be given top priority. The distribution sector needs to urgently enhance power procurement and portfolio optimization skills. Many of the present

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cost problems are on account of poor planning in power procurement and contract management. Customer service and management methods need to be improved substantially for greater consumer satisfaction and overall reduction in service costs. This would also facilitate implementing cost-reflective tariffs and timely payments from consumers. Trading of power at very high rates has a distortion effect and threatens to jeopardize the financial viability of distribution companies. Urgent steps are needed to bring the practice under appropriate discipline. The recommendations of the Open Access Task Force Committee should be implemented. In particular, load-dispatch centres should be made independent and open access promoted by providing onefourth of unallocated power from central PSUs to incentivize states. In case of all new central PSU plants, it should be increased to 50%. Energy audit of power utilities should be done using information technology. Free power to farmers needs metering and upfront subsidy by states. The programme for separation of feeders in rural areas, as in Gujarat, Rajasthan, Haryana, and Andhra Pradesh, should be implemented. Upgrade of Power Transmission and Distribution System The T&D losses in India are very high, and the distribution infrastructure is obsolete. The T&D network has to be immediately strengthened. A national debate has to be initiated on the question of free supply of electricity. Priority should be accorded to research activities with potential for societal, environmental, and national benefits. Focus should be on development of higher transmission voltages of 1200 kV ultra-high voltage alternating current (UHVAC) and ±800 kV high-voltage direct current (HVDC) systems to achieve efficient utilization of right of way (RoW) and increased power transfer capability for transfer of bulk power over long distances. Blueprint for Energy Diplomacy A blueprint of energy diplomacy for a comprehensive sectoral energy dialogue and technology transfer should be developed.

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Energy Security and Economic Development in India

Fuel Efficiency Energy-efficient electric devices have to be introduced in large scale. The measures being undertaken by the BEE have to be further strengthened. Public Transport Inadequacy of public transport leads to dependence on private transport, which increases the total energy requirement of the country. Hence, the public transport has to be prioritized and strengthened, which includes modernization of highways and railways.

Medium-term Measures • There is an urgency to develop a countrywide gas pipeline transportation infrastructure for making gas available in major parts of the country. • Clean coal technologies India has considerable resource of coal. Developing clean coal technologies should be undertaken in the medium term. • Coal-to-liquids and value-added fuels There is a steep arbitrage for energy contained in coal vis-à-vis energy in liquid fuels. Hence, conversion of coal to syngas, synthetic natural gas, methanol, DME, and other liquid petroleum products will improve the energy security of India while reducing the energy bill on expensive fuels. • Shale gas In view of the huge availability of shale gas in India, efforts should be stepped up to ensure technology transfer in the arena. Shale gas is emerging as a new potential source of natural gas, which has transformed the natural gas sector in the USA in recent years. The recent success of shale gas usage in China has given a boost to other aspirant countries. India has considerable geological tracts with shale gas potential. Adoption and upgrade of technology are required for exploration and exploitation. This can fill the deficiency in natural gas. • Specialized refining capacity India should be proactive in adding specialized refinery capacity based on emerging technologies to refine entire heavy crudes, which will improve the availability of crude. In fact, India can become the hub for refining factories.

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• Renewable resources India has a large potential for renewables, leading by hydropower, followed by wind and others. The hydropower potential exists within the territory and the neighbouring countries such as Nepal and Bhutan. Hydropower generation should be fast tracked through a focused drive, as well as creating evacuation facility and grid connectivity. Emphasis should be placed on expanding wind power generation and the emerging area of solar thermal and solar photovoltaic power. A fresh assessment of wind power has to be made. As stipulated in the national electricity policy, efforts should be made to bring parity in the prices of renewable energy sources. A committee has to be set up to study the issues relating to pricing of renewable energy sources. Special efforts should be made to speed up capacity addition in the hydropower sector by expediting environmental clearances. • Energy efficiency The BEE should be given regulatory power for implementing energy efficiency measures. In the medium term, focus should be laid on improving energy efficiency in micro, small, and medium sectors.

Long-term Measures Underground Coal Gasification Many of the coal deposits in India cannot be mined economically. Underground coal gasification is the potential solution to the exploitation of these resources. India should undertake adoption of emerging technology apart from sustained research in addressing the problems associated with underground coal gasification such as contamination of water and ground subsidence, which has a larger effect in India due to population density. Gas Hydrides It is often referred to as future energy. Gas hydrides have a huge energy potential to be harnessed. As new technologies are evolving, India should be first in line to commercialize them, for we have a large potential resource around Andaman Islands for exploration and exploitation. Thorium Power India has a large resource of thorium, which is safer to use in power generation vis-à-vis uranium. India should undertake special research in advancing thorium utilization technology.

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Energy Security and Economic Development in India

Fuller Use of Solar Spectrum The current technology, usage of solar spectrum, and efficiencies achieved are very low. New research is pointing out wider utilization of solar spectrum and generation of hydrogen, which in turn can be used as feedstock for power generation and as transport fuel. Hydrogen as Fuel Hydrogen is often referred to as future fuel. For a country like India with a high density of inhabitation, it could become a fuel for the future, as it is easier to create hydrogen storage and vending infrastructure. Innovative Hydels New hydel technologies are emerging for using flowing river as well as tidal waves. There exist some large potential tracts in India such as Gulf of Khambhat in Gujarat for development of this energy resource, which the country should pursue. This will be one of the cleanest and cheapest sources of energy.

Annexures ANNEXURE 1 DATA COLLECTION METHODS AND METHODOLOGY Secondary sources of data have been used and econometric techniques have been adopted for analysing this data.

STUDY PERIOD The study period considered for the descriptive analysis is 1970/71 to 2006/07. Data on variables such as energy consumption, production, and imports of various sub-components such as coal, petroleum, electricity, natural gas, and nuclear power have been collected. However, the study period considered for empirical analysis involving growth rates, elasticities, and causality has been taken from 1980/81 to 2009/10. The data comprises various components of energy, and the total energy consumption is measured in million tonne of oil equivalent (MTOE). The data on real gross domestic product (GDP) collected from the Economic Survey of India has been used for empirical analysis. More precisely, the data comprises annual measures of GDP in constant prices and of energy consumption of various sub-sectors. All the series have been transformed into natural logarithms for the required computations.

METHODS AND TECHNIQUES To verify the first hypotheses, the trends in energy consumption and production for total energy and its components have been estimated using a semi-log functional form as follows. ln Y = a + b t where ln Y is the natural log of consumption and t is the time extended to the sub-components has been selected after verifying

a dependent variable, say, energy variable. The equation has been of the energy sector. This model various functional forms in terms

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of their statistical and econometric properties. The growth rate has been estimated as g = b × 100. The data for 1980/81–2009/10 have been collected from the Planning Commission and have been used for this purpose as well as to measure the trends in energy security and energy elasticities. The trends in growth, elasticities, and energy intensity of various components of energy have been computed to the core. For this purpose, the study period (1980/81–2009/10) has been divided into three sub-periods—1980/81–1990/91, 1991/92–2000/01, and 2001/02–2009/10. The sub-periods have been chosen on the basis of trend break analysis as it suggests a clear upward shift in the trends during 1991/92 and a somewhat downward shift during 2001/02 for most of the variables. Therefore, a structural-shift analysis based on the dummy-variable method has been used to verify the changes in the trends.

DUMMY-VARIABLE APPROACH The dummy-variable methodology is simple but eminently useful when compared to the familiar multi-step Chow test in literature. The conclusions derived from both the methods will be identical, but there are some additional advantages in the dummy-variable method, which can be listed as follows. • We need to run only one single equation covering the entire time period and can obtain the individual equations for the three subperiods. • Simple regression can be used to test various hypotheses. Thus, if the differential intercept coefficient is statistically insignificant, we may accept the hypothesis that the two regressions have the same intercept, that is, the two regressions are concurrent. Analogously, if the differential slope coefficient is statistically significant, but the intercept is significant, we may at least not reject the hypothesis that the two regressions have the same slope, that is, the two regressions lines are parallel. The test of the stability of the entire regression can be made by the usual F-test of the overall significance of the estimated regression equation. • The dummy-variable approach has an advantage over the Chow test as it not only states that the two regressions are different but also pinpoints the sources of difference—whether it is due to the intercept or the slope, or both.

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• Finally, since pooling increases the degrees of freedom, it may improve the relative precision of the estimated parameters. We have divided the study period into three sub-periods as mentioned above based on the time break analysis. As there is a break in the trends of several energy components during 1990/91, initially we have chosen 1990/91 as the break year. However, to have uniform sub-periods, we have considered 2001/02 another break in the study period. Most of our variables in terms of consumption, production, and imports have behaved as we have expected. Therefore, the structural-shift analysis based on dummy variables seems to be appropriate in studying the changes in trends in variables such as growth and elasticity in the Indian energy sector. It is not only relevant to measure such concepts, but it is also necessary to verify whether they show any upward or downward trend to bring in policy initiatives. Preliminary regressions of sub-components of energy revealed that the sub-periods based on 1990/91 and 2000/01 have provided high t values. Hence, this periodization was also applied to aggregate as well as disaggregate data of the Indian energy sector. The trends in the above-mentioned variables as well as the shifts have been measured, using the following equation. ln Y = a + bT + (a1 – a) D1 + (a2 – a1) D1 + (b1 – b) D1 t + (b2 – b1) D2 t where D1 = 0 for 1980/81–1990/91 and D1 = 1 for the remaining period; D2 = 0 for 1990/91–2000/01 and D2 = 1 for the remaining period; a and b are the intercept and slope parameters for 1980/81–1990/91; a1 and b1 are those for 1990/91–2000/01; and a2 and b2 are those for 2001/02–2009/10. Also (a1 – a) is the differential intercept for the second sub-period, (a2 – a1) is the differential intercept for the third sub-period, (b1 – b) is the differential slope coefficient for the second sub-period, and (b2 – b1) is the differential slope coefficient for the third sub-period. Moreover, a is the intercept for period one, and b is the coefficient for period one. Therefore, the coefficient of time measures the growth rate or elasticity or energy intensity for the first sub-period. The coefficient of D1T measures the change in the variable, and if it is positive, there is an increase; if the coefficient is negative, there is a decline in the variable during the second sub-period. Similarly, the coefficient of D2T measures the change in the variables, and if it is positive, there is

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an increase, and if it is negative, there is a decline in variable for the third sub-period. However, the increase or decrease in the variables has to be deciphered after taking the statistical significance of these coefficients into account. To verify whether the gap between energy consumption and production has been widening, the equation on imports has been estimated. ln Mt = a + bt where Mt represents imports of energy and b × 100 is the growth rate. To verify the second hypothesis, two measures on energy security have been employed: (1) energy security indicator in terms of imports, which is defined as the ratio of energy imports to the total energy consumption (ESIM) and (2) energy security indicator in terms of production, which is defined as the ratio of energy production to the total energy consumption (ESIP). Energy security requires a decline in ESIM and an increase in ESIP. To verify the third hypothesis, a double log functional form has been estimated as follows. ln Y = a + b ln X where ln Y is the natural log of GDP and ln X is the natural log of energy consumption. The coefficient b is the measure of energy elasticity. It measures the per cent increase in GDP for a given 1% increase in energy consumption. An increase in the value of the coefficient of the model indicates an increase in the productivity, that is, efficiency of energy consumption. To verify whether there is any statistically significant change in the elasticities, the structural-shift model has been used, which is as follows. ln Yt = b0 + D1 + D2 + b1 ln ECt + b2 D1 ln ECt + b3 D2 ln ECt + error where ln Yt is the natural log of GDP and ln EC is the natural log of energy consumption. The remaining coefficients have the same meaning as explained earlier.

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Energy Security We have measured energy security using two indicators of energy dependence—ESIM and ESIP. An increase in ESIP and a decline in ESIM indicate a decline in energy dependence and, therefore, an increase in energy security. These ratios have been properly computed, and a structural-shift analysis has been used to verify the changes in energy security over the study period. The sub-periods considered for the analysis are 1980/81–1990/91, 1990/91–2000/01, and 2001/02–2009/10. The model used is as follows. Yt = b0 + D1 + D2 + b1t + b2 D1t + b3D2t + error where Yt is a measure of energy security; D1 = 0 for 1980/81–1990/91 and D1 = 1 for the rest of the period; D2 = 0 for 1991/92–2000/01 and D2 = 1 for the rest of the period; and t = time.

Energy Intensity Energy intensity has been computed using the ratio of energy consumption (EC) to GDP, and the logarithmic trend has been estimated using the ordinary least squares (OLS) method. The same procedure has been significantly used to verify the changes in energy intensity. The equation is as follows. ln (EC/GDP) = a + bt where EC/GDP is a measure of energy intensity and if b > 0, it is rising. An increase in energy intensity indicates energy inefficiency in the economy. The model used is as follows. Yt = b0 + D1 + D2 + b1t + b2 D1t + b3D2t + error where Yt is a measure of energy intensity; D1 = 0 for 1980/81–1990/91 and D1 = 1 for the rest of the period; D2 = 0 for 1991/92–2000/01 and D2 = 1 for the rest of the period; and t = time.

Causality In order to verify the causality hypothesis, we examine the relationship between energy consumption and GDP of India using a two-step procedure as follows. The first step in causality investigation is to verify for the existence of a unit root in the variables. Since many macroeconomic series are

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non-stationary, unit root tests are useful to determine the order of integration of the variables and, therefore, to provide the time-series properties of data. In order to implement a more intransigent test to verify the presence of a unit root in variables, the Phillips–Perron test has been employed.

PHILLIPS–PERRON TEST The Phillips–Perron (PP) test proposes a substitutive non-parametric method for serial correlation when testing for a unit root among the variables. The PP method estimates the non-augmented Dickey–Fuller test equation and modifies the t ratio of the α coefficient so that serial correlation does not affect the distribution of the test statistic. The second step explores the causal relationship between the series. If the series are stationary, the standard Granger causality test should be employed. If the series are non-stationary and the linear combination of them is stationary, the ECM approach should be adopted. For this reason, testing for co-integration is a necessary prerequisite to implement the causality test. We have used Johansen’s method for verifying the co-integration between natural logs of energy consumption and GDP. Causality is an important concept in natural as well as social sciences. There is a dividing line between necessary and sufficient causes. In case we have a deterministic system, consider the statement “A is a necessary cause of B”. It would be logically equivalent to the statement “B cannot occur without A”. On the other hand, the statement “A is a sufficient cause of B” is understood to mean that whenever A occurs, B also occurs. Laws (in natural sciences) almost invariably use the term “cause” in its sufficient connotation. Several models have been developed in literature to test the causality in bivariate relationships. Causality tests are well received in studying the relationship between money and prices. Now they are increasingly used in other areas of economics as well. A review of a few studies directly relevant for this work is attempted below.

Granger Test Granger provided a causality framework particularly relevant for social sciences. His definition of causality is an operational one and can be used for empirical purposes. Granger makes use of two fundamental axioms—one due to Bacon and the other due to Hume.

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According to Granger, a variable x causes another variable y if the latter can be predicted better from past values of x and y than from past values of y alone. Two regressions have to be performed to test for causality from one variable to another. If x causes y and not vice versa, x is said to be causing y unidirectional. If causation is both ways, it is said to be a feedback, that is, bidirectional causality between them. These regression equations provide an F-statistic with which the statistical significance of the past values of a variable can be tested. Let and be two stationary time series with zero means. The simple Granger test may be explained as follows. Yt = a0 + Xt = c 0 +

m

S

i=1 m

S

i=1

ai Xt – i + ciXt – i +

n

S

j=1 n

S

j=1

bjYt – j + u1t

º(1)

djYt – j + u2t

º(2)

where a0, c 0, ai, bi, and ci are coefficients. u1t and u2t are mutually uncorrelated white noise series. The causality implies that if is to cause the coefficients have to be non-zero as a group and that if is to cause the coefficients have to be non-zero as a group. If both things occur simultaneously, it is said to be a bidirectional causality between the variables. It is to be noted here that the Granger test of causality is sensitive to the choice of lag lengths. Therefore, it is essential to fix an appropriate lag length at the beginning itself. The important issue is whether causal influences can be drawn on the basis of empirical facts alone or, as Zelner insists, causality can only be tested within the context of some accepted theory. However, economics is a social science containing universally accepted hypotheses, and hence a so-called “well-thought economic theory” may well contain relations, which themselves need to be causally tested. Thus, from the practical point of view, the Granger causality test may be used in theorizing causal relations between variables. For each equation, the null hypothesis is that it does not Granger-cause in the first regression and that it does not Granger-cause in the second regression. On the basis of Stock and Watson’s (1989) findings, the traditional Granger causality tests (1969) are sensitive to the stationary of the time series. Hence, co-integration test has been used, especially in recent studies.

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The present paper uses the Johansen maximum likelihood procedure for the co-integration test using maximum eigen value and trace statistics. However, in the first step, the Phillips–Perron (1988) unit root test is used to verify the degree of amalgamation. If the presence of co-integration is confirmed by the Johansen test, the vector error correction (VEC) model can be used to show the direction of the causality relationship. According to Engle and Granger (1987), the VEC model will be as follows. DYt = a21(1) DYt – 1 + a22(1) DXt – 1 + ly ECTt – 1 + e2t

º(3)

DXt = a11(1) DYt – 1 + a12(1) DXt – 1 + lxECTt – 1 + e1t

º(4)

where, yt, xt, and e are real GDP, energy consumption, and error term, respectively. Also, D, (l), and ECT are difference operator, polynomials in the lag operator “L”, and the coefficient of the lagged error correction term. Similarly, l shows the deviation of the dependent variable from the long run equilibrium. The non-significance of explanatory variable coefficients (and) is referred to as a short run non-causality. In this case, if no causality in either direction is found, “the neutrality hypothesis” will be supported.

Annexures

ANNEXURE 2

277

STATISTICAL DATA

Table 1 Production of primary sources of conventional energy in India Year

Coal and lignite (MT)

Crude petroleum (MT)

Natural gas (million m3)

Electricity (hydro and nuclear)

1970/71

76 340

6 822

1 445

27 666

1971/72

76 140

7 299

1 535

29 214

1972/73

80 110

7 321

1 565

28 329

1973/74

81 490

7 189

1 713

31 368

1974/75

91 350

7 684

2 041

30 081

1975/76

102 660

8 448

2 368

35 928

1976/77

105 010

8 898

2 428

38 088

1977/78

104 560

10 763

2 839

40 279

1978/79

105 250

11 633

2 812

49 929

1979/80

106 840

11 766

2 767

48 354

1980/81

119 020

10 507

2 358

49 543

1981/82

131 240

16 194

3 851

52 586

1982/83

137 530

21 063

4 936

50 396

1983/84

147 539

26 020

5 961

53 500

1984/85

155 277

28 990

7 241

58 023

1985/86

162 336

30 168

8 134

56 003

1986/87

175 290

30 480

9 853

58 862

1987/88

192 551

30 357

11 467

52 479

1988/89

208 820

32 040

13 217

63 690

1989/90

215 724

34 087

16 988

66 741

1990/91

228 131

33 021

17 998

77 782

1991/92

248 805

30 346

18 645

78 282

1992/93

258 616

26 950

18 060

76 595

1993/94

266 785

27 026

18 335

75 861

1994/95

277 080

32 239

19 468

88 360

1995/96

295 561

35 167

22 642

80 561

1996/97

308 720

32 900

23 256

77 972

1997/98

320 221

33 858

26 401

84 665

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Energy Security and Economic Development in India

Table 1 Contd... Year

Coal and lignite (MT)

Crude petroleum (MT)

Natural gas (million m3)

Electricity (hydro and nuclear)

1997/98

320 221

33 858

26 401

84 665

1998/99

315 689

32 722

27 428

94 846

1999/2000

322 168

31 949

28 446

94 005

2000/01

336 643

32 426

29 477

91 264

2001/02

352 601

32 032

29 714

93 054

2002/03

367 290

33 044

31 389

83 404

2003/04

389 204

33 373

31 962

93 022

2004/05

412 952

33 981

31 763

101 621

2005/06

437 105

32 190

32 202

118 818

2006/07

461 980

33 988

31 747

131 966

MT – million tonnes Source MoSPI (Ministry of Statistics and Programme Implementation). Energy Statistics 2007. New Delhi: MoSPI. Details available at

Table 2 Year

Production of conventional energy (in peta joules) in India, by primary sources Coal and lignite 2

Crude petroleum 3

Natural gas 4

1970/71

1 598

286

56

996

2 936

1971/72

1 594

306

59

1 052

3 011

1972/73

1 677

307

60

1 020

3 064

1973/74

1 706

301

66

1 129

3 202

1974/75

1 912

322

79

1 083

3 396

1975/76

2 149

354

91

1 293

3 887

1976/77

2 198

373

94

1 371

4 036

1977/78

2 188

451

109

1 450

4 198

1978/79

2 203

487

108

1 797

4 595

1979/80

2 236

493

107

1 741

4 577

1980/81

2 491

440

91

1 784

4 806

1981/82

2 747

678

148

1 893

5 466

1

Electricity Total (hydro and nuclear)* 5 6 = 2+3+4+5

Annexures

279

Table 2 Contd... Year

Coal and lignite 2

Crude petroleum 3

1982/83

2 748

882

190

1 814

5 634

1983/84

2 948

1 089

230

1 926

6 193

1984/85

3 047

1 214

279

2 089

6 629

1985/86

3 185

1 263

313

2 016

6 777

1986/87

3 439

1 276

380

2 119

7 214

1987/88

3 778

1 271

442

1 889

7 380

1988/89

4 097

1 342

509

2 293

8 241

1989/90

4 233

1 427

654

2 403

8 717

1990/91

4 063

1 383

693

2 800

8 939

1991/92

4 431

1 271

718

2 818

9 238

1992/93

4 606

1 128

696

2 757

9 187

1993/94

4 751

1 132

706

2 731

9 320

1994/95

4 935

1 350

750

3 181

10 216

1995/96

5 264

1 472

872

2 900

10 508

1996/97

5 498

1 378

896

2 807

10 579

1997/98

5 469

1 418

1 017

3 048

10 952

1998/99

5 392

1 370

1 057

3 414

11 233

1999/2000 5 454

1 338

1 096

3 384

11 272

2000/01

5 683

1 358

1 135

3 286

11 462

2001/02

5 948

1 341

1 145

3 350

11 784

2002/03

6 126

1 383

1 209

3 003

11 721

2003/04

6 496

1 397

1 231

3 349

12 473

2004/05

6 855

1 423

1 224

3 658

13 160

2005/06

7 008

1 348

1 240

4 277

13 873

2006/07

7 335

1 423

1 223

4 751

14 732

1

* 

Natural gas 4

Electricity Total (hydro and nuclear)* 5 6 = 2+3+4+5

Thermal electricity is not a primary source of energy. Source MoSPI (Ministry of Statistics and Programme Implementation). Energy Statistics 2007. New Delhi: MoSPI. Details available at

280

Energy Security and Economic Development in India

Table 3 Availability of primary sources of conventional energy in India Year

Coal (‘000 tonnes) 2

Crude petroleum (‘000 tonnes) 3

Natural gas (million m3) 4

Electricity (hydro and nuclear) (GWh) 5

1970/71

71 240

18 505

647

27 666

1971/72

74 070

20 250

718

29 214

1972/73

78 210

19 405

771

28 329

1973/74

77 680

21 044

762

31 368

1974/75

85 600

21 700

951

30 081

1975/76

92 170

22 072

1 124

35 928

1976/77

100 100

22 946

1 381

38 088

1977/78

103 840

25 270

1 464

40 279

1978/79

100 160

26 290

1 711

49 929

1979/80

105 540

27 887

1 676

48 354

1980/81

109 320

26 755

1 522

49 543

1981/82

121 020

30 654

2 222

52 586

1982/83

130 138

33 460

2 957

50 396

1983/84

139 302

36 465

3 401

53 500

1984/85

141 458

36 154

4 141

58 023

1985/86

155 536

44 784

4 950

56 003

1986/87

166 846

45 956

7 075

58 862

1987/88

180 645

48 091

7 968

52 479

1988/89

193 970

49 855

9 250

63 690

1989/90

209 481

53 577

11 172

66 741

1990/91

214 987

53 720

12 765

77 782

1991/92

232 338

54 340

14 441

78 282

1992/93

245 255

56 197

16 116

76 595

1993/94

256 327

57 848

16 340

75 861

1994/95

269 180

59 588

17 337

88 360

1995/96

284 043

62 509

20 932

80 561

1996/97

298 621

66 806

21 324

77 972

1997/98

306 824

68 351

24 545

84 665

1998/99

315 047

72 530

25 706

94 846

1999/2000

325 047

89 754

26 885

94 005

2000/01

325 448

106 523

27 860

91 264

1

Annexures

281

Table 3 Contd... Year

Coal (‘000 tonnes) 2

Crude petroleum (‘000 tonnes) 3

2001/02

343 124

110 738

28 037

93 054

2002/03

361 745

115 033

29 964

83 404

2003/04

379 405

123 807

30 906

93 022

2004/05

404 691

129 842

30 775

101 621

2005/06

433 292

131 599

31 325

118 818

2006/07

462 799

144 846

30 791

131 966

1

Natural gas (million m3) 4

Electricity (hydro and nuclear) (GWh) 5

Source MoSPI (Ministry of Statistics and Programme Implementation). Energy Statistics 2007. New Delhi: MoSPI. Details available at

Table 4a Year

Domestic production of petroleum products in India (MT): light distillates and middle distillates Light distillates

Middle distillates

Motor gasoline

Naphtha

Kerosene

1

Liquefied petroleum gas 2

3

4

5

1970/71

169

1 526

1 205

2 896

1971/72

195

1 615

1 217*

1972/73

227

1 581

1973/74

259

1 647

1974/75

278

1975/76

Aviation turbine fuel 6

High speed diesel 7

Light diesel oil 8

710

3 840

986

2 995

808

4 356

1 065

1 330*

2 813

801

4 598

1 010

1 438*

2 613

875

5 039

1 079

1 298

1 720

2 052

837

6 034

1 084

331

1 275

1 910

2 439

925

6 285

946

1976/77

363

1 340

1 986

2 581

1 001

6 399

1 047

1977/78

383

1 423

2 120

2 450

1 077

7 129

1 224

1978/79

403

1 515

2 262

2 514

1 177

7 350

1 227

1979/80

406

1 512

2 415

2 539

1 104

7 975

1 230

1980/81

366

1 519

2 115

2 396

1 001

7 371

1 108

1981/82

410

1 614

3 004

2 907

1 009

9 042

949

1982/83

406

1 797

2 986

3 393

1 137

9 761

1 121

1983/84

514

1 937

3 578

3 528

1 195

10 862

1 081

1984/85

596

2 144

3 470

3 364

1 297

11 086

1 253

1985/86

867

2 309

4 955

4 030

1 519

14 624

1 177

282

Energy Security and Economic Development in India

Table 4a Contd... Year

Light distillates

Middle distillates

Liquefied petroleum gas 2

Motor gasoline

Naphtha

Kerosene

5

Aviation turbine fuel 6

High speed diesel 7

Light diesel oil 8

3

4

1986/87

995

2 515

5 437

4 912

1 553

15 450

1 172

1987/88

1 026

2 662

5 462

5 104

1 695

16 296

1 259

1988/89

1 034

2 822

5 378

5 201

1 753

16 656

1 468

1989/90

1 179

3 328

5 227

5 700

1 575

17 737

1 540

1990/91

1 221

3 552

4 859

5 471

1 801

17 185

1 509

1991/92

1 250

3 420

4 546

5 339

1 539

17 404

1 482

1992/93

1 249

3 709

4 586

5 199

1 636

18 289

1 453

1993/94

1 314

3 843

4 666

5 270

1 788

18 809

1 474

1994/95

1 432

4 129

5 662

5 261

1 968

19 593

1 364

1995/96

1 539

4 462

5 975

5 267

2 127

20 661

1 351

1996/97

1 598

4 704

6 123

6 236

2 119

22 202

1 286

1997/98

1 666

4 849

6 103

6 701

2 147

23 354

1 246

1998/99

1 724

5 573

6 081

5 341

2 289

26 716

1 336

1999/2000 2 487

6 232

8 170

5 735

2 292

34 793

1 624

2000/01

4 088

8 070

9 908

8 714

2 513

39 052

1 481

2001/02

4 778

9 699

9 180

9 681

2 595

39 899

1 703

2002/03

4 903

10 361

9 650

10 028

3 053

40 207

2 079

2003/04

5 348

10 999

11 317

10 187

4 289

43 316

1 659

2004/05

5 570

11 057

14 100

9 298

5 201

45 903

1 546

2005/06

5 525

10 502

14 509

9 078

6 196

47 572

923

2006/07

6 315

12 539

16 660

8 491

7 805

53 465

803

1

* Estimated from calendar year figures Source MoSPI (Ministry of Statistics and Programme Implementation). Energy Statistics 2007. New Delhi: MoSPI. Details available at

Annexures

Table 4b Year 1 1970/71

283

Domestic production of petroleum products in India (MT): heavy ends and others Heavy ends Fuel oil Lubricants 9 10 4 090

231 a

Petroleum 11 151 a

Coke bitumen 12 805

Others*

Total

13

14

501

17 110

a

1971/72

4 098

140

142

1 009

999

18 639

1972/73

3 688

304a

132a

1 109a

267

17 860

1973/74

3 931

a

318

a

131

a

1 093

1 072

19 495

1974/75

4 243

387

137

873

668

19 611

1975/76

5 083

342

160

697

436

20 829

1976/77

4 728

368

163

945

511

21 432

1977/78

5 332

413

155

992

521

23 219

1978/79

5 644

490

122

962

527

24 193

1979/80

6 351

487

99

1 103

573

25 794

1980/81

6 120

426

86

1 082

533

24 123

1981/82

6 908

407

141

1 298

493

28 182

1982/83

7 964

434

149

1 397

528

31 073

1983/84

8 000

470

136

1 069

556

32 926

1984/85

7 886

414

181

944

601

33 236

1985/86

7 955

501

192

1 107

645

39 881

1986/87

8 011

491

264

1 224

737

42 761

1987/88

8 466

478

257

1 370

653

44 728

1988/89

8 171

497

275

1 548

896

45 699

1989/90

8 952

547

275

1 671

959

48 690

1990/91

9 429

561

229

1 603

1 142

48 562

1991/92

9 637

390

216

1 710

1 416

48 349

1992/93

10 403

533

221

1 862

1 219

50 359

1993/94

10 304

489

233

1 874

1 020

51 084

1994/95

9 822

504

259

1 845

1 088

52 927

1995/96

9 579

633

256

2 032

1 199

55 081

1996/97

10 298

619

246

2 283

1 291

59 005

1997/98

11 080

593

282

2 158

1 129

61 308

284

Energy Security and Economic Development in India

Table 4b Contd... Year

Heavy ends Fuel oil Lubricants 9 10

1

Others* Petroleum 11

Coke bitumen 12

Total

13

14

11 030

586

286

2 419

1 163

64 544

1999/2000 11 352

728

465

2 485

3 048

79 411

1998/99 2000/01

11 392

684

2 473

2 721

4 518

95 614

2001/02

12 227

651

2 784

2 561

4 246

100 004

2002/03

12 167

684

2 659

2 941

5 408

104 140

2003/04

13 372

666

2 743

3 397

6 170

113 463

2004/05

14 970

646

3 162

3 349

3 777

118 579

2005/06

14 305

677

3 182

3 576

3 705

119 750

2006/07

15 697

825

3 779

3 891

4 990

135 260

* 

Estimated from calendar year figures Source MoSPI (Ministry of Statistics and Programme Implementation). Energy Statistics 2007. New Delhi: MoSPI. Details available at

Table 5

Consumption of conventional energy in India, by source

Year

Coal (’000 tonnes) 2

Crude petroleum (‘000 tonnes) 3

Natural gas (million m3) 4

1970/71

71 230

18 379

647

43 724

1971/72

74 060

20 042

718

47 073

1972/73

78 180

19 328

771

49 088

1973/74

77 660

20 958

762

50 246

1974/75

85 580

21 094

951

52 632

1975/76

92 160

22 283

1 126

60 246

1976/77

100 100

22 995

1 381

66 639

1977/78

103 780

24 898

1 464

69 255

1978/79

100 150

25 974

1 711

77 293

1979/80

105 530

27 474

1 681

78 084

1980/81

109 310

25 836

1 522

82 367

1981/82

121 010

30 146

2 222

90 245

1982/83

130 130

33 156

2 957

95 589

1983/84

137 290

35 263

3 401

102 344

1

Electricity (GWh) 5

Annexures

285

Table 5 Contd... Year

Coal (’000 tonnes) 2

Crude petroleum (‘000 tonnes) 3

Natural gas (million m3) 4

Electricity (GWh) 5

1984/85

141 450

35 556

4 141

114 068

1985/86

155 530

42 910

4 950

123 099

1986/87

166 840

45 699

7 075

135 952

1987/88

179 209

47 754

7 968

145 613

1988/89

192 115

48 803

9 250

160 196

1989/90

203 424

51 942

11 172

175 419

1990/91

213 360

51 772

12 766

190 357

1991/92

232 330

51 423

14 442

207 645

1992/93

241 750

53 482

16 116

220 674

1993/94

256 320

54 296

16 340

238 569

1994/95

269 174

56 534

17 337

259 629

1995/96

284 037

58 741

18 091

277 029

1996/97

298 620

62 870

18 632

280 146

1997/98

306 824

65 166

21 513

296 749

1998/99

313 476

68 538

22 489

309 734

1999/2000

315 047

85 964

26 885

312 841

2000/01

341 220

103 444

27 860

316 600

2001/02

349 740

107 274

28 037

322 459

2002/03

361 745

112 559

29 964

339 598

2003/04

379 405

121 841

30 906

360 937

2004/05

404 691

127 117

30 775

386 134

2005/06

433 292

130 109

31 025

411 887

2006/07

462 799

146 551

31 368

443 163

1

Source MoSPI (Ministry of Statistics and Programme Implementation). Energy Statistics 2007. New Delhi: MoSPI. Details available at

286

Energy Security and Economic Development in India

Table 6 Year

1 1970/71

Foreign trade in coal, crude oil, and petroleum products in India (’000 tonnes) Coal Crude oil Petroleum products Gross Exports Net Gross Exports Net Gross Exports Net imports imports imports imports imports imports 2 3 4=2–3 5 6 7=5–6 8 9 10 = 8 – 9 —

470

(470)

11 683

—

11 683

1 083

332

752

1971/72

—

230

(230)

12 951

—

12 951

2 147

136

2 011

1972/73

—

460

(460)

12 084

—

12 084

3 525

126

3 399

1973/74

—

620

(620)

13 873

18

13 855

3 548

161

3 387

1974/75

—

540

(540)

14 016

—

14 016

2 648

175

2 473

1975/76

—

440

(440)

13 624

—

13 624

2 218

170

2 048

1976/77

—

640

(640)

14 048

—

14 048

2 624

74

2 550

1977/78

—

660

(660)

14 507

—

14 507

2 879

47

2 832

1978/79

220

270

(50)

14 657

—

14 657

3 878

44

3 834

1979/80

940

90

850

16 121

—

16 121

4 724

88

4 636

1980/81

550

110

440

16 248

—

16 248

7 289

36

7 253

1981/82

650 160

490

15 298

838

14 460

4 884

55

4 829

1982/83

1 380 150

1 230

16 949 4 552

12 397

5 028

795

4 233

4 328 1 472

2 856

6 092

933

5 159

1983/84

460

80

380

15 967 5 522

10 445

1984/85

580 130

450

13 642 6 478

8 164

1985/86

2 030 210

1 820

15 144

528

14 616

3 865 1 963

1 902

1986/87

2 100 160

1 940

15 476

—

15 476

3 047 2 491

556

1987/88

2 970 170

2 800

17 734

—

17 734

4 151 3 412

739

1988/89

3 700 200

3 500

17 815

—

17 815

6 495 2 295

4 200

1989/90

4 410 160

4 250

19 490

—

19 490

6 564 2 593

3 971

1990/91

4 900 100

4 800

20 699

—

20 699

8 660 2 648

6 012

1991/92

5 920 110

5 810

23 994

—

23 994

9 445 2 936

6 509

1992/93

6 250 130

6 120

29 247

—

29 247

11 283 3 719

7 564

1993/94

7 100 100

7 000

30 822

—

30 822

12 076 4 034

8 042

1994/95

8 270 120

8 150

27 349

—

27 349

13 951 3 254

10 697

1995/96

8 870

8 781

27 342

—

27 432

20 335 3 435

16 900

89

1996/97

13 177 480

12 697

33 906

—

33 906

20 265 3 162

17 103

1997/98

16 469 541

15 928

34 493

—

34 493

22 970 2 381

20 589

1998/99

16 536 787

15 749

398 087

—

39 808

23 772

720

23 052

1999/2000 19 700 1 156

18 544

57 805

—

57 805

16 608

746

15 862

Annexures

287

Table 6 Contd... Year

1

Coal Crude oil Petroleum products Gross Exports Net Gross Exports Net Gross Exports Net imports imports imports imports imports imports 2 3 4=2–3 5 6 7=5–6 8 9 10 = 8 – 9

2000/01

20 930 1 292

19 638

74 097

—

74 097

9 267 8 365

902

2001/02

20 548 1 903

18 645

78 706

—

78 706

7 009 10 065

(3 056)

2002/03

23 260 1 517

21 743

81 989

—

81 989

7 228 10 289

(3 061)

2003/04

21 683 1 627

20 056

90 434

—

90 434

8 001 14 620

(6 619)

2004/05

28 950 1 374

27 576

95 861

—

95 861

8 828 18 211

(9 383)

2005/06

38 586 1 989

36 597

99 409

—

99 409

11 677 21 507

(9 830)

2006/07

45 000 2 010

42 990

110 858

— 110 858

16 966 32 394 (14 428)

Note Figures in brackets are negative. Source MoSPI (Ministry of Statistics and Programme Implementation). Energy Statistics 2007. New Delhi: MoSPI. Details available at

Table 7 Year

Production of coal and lignite in India (’000 tonnes) Coal Coking 2

Lignite

Grand total

Non-coking 3

Total 4=2+3

5

6

1970/71

17 820

55 130

72 950

3 390

76 340

1971/72

16 750

55 670

72 420

3 720

76 140

1972/73

16 620

60 600

77 220

2 890

80 110

1973/74

15 770

62 400

78 170

3 320

81 490

1974/75

20 960

67 450

88 410

2 940

91 350

1975/76

30 120

69 510

99 630

3 030

102 660

1976/77

31 830

69 160

100 990

4 020

105 010

1977/78

31 330

69 650

100 980

3 580

104 560

1978/79

31 210

70 740

101 950

3 300

105 250

1979/80

30 870

73 070

103 940

2 900

106 840

1980/81

32 620

81 290

113 910

5 110

119 020

1981/82

35 480

89 450

124 930

6 310

131 240

1982/83

36 965

93 633

130 598

6 932

137 530

1983/84

35 983

104 259

140 242

7 297

147 539

1984/85

36 065

111 373

147 438

7 839

155 277

1985/86

35 160

119 136

154 296

8 040

162 336

1

288

Energy Security and Economic Development in India

Table 7 Contd... Year

Coal Coking 2

Non-coking 3

Total 4=2+3

5

6

1986/87

38 339

127 347

165 686

9 604

175 290

1987/88

40 026

141 259

181 285

11 266

192 551

1988/89

42 049

154 181

196 230

12 590

208 820

1989/90

43 823

159 538

203 361

12 363

215 724

1990/91

44 772

169 285

214 057

14 074

228 131

1991/92

45 897

186 921

232 818

15 987

248 805

1992/93

45 207

196 788

241 995

16 621

258 616

1993/94

44 659

204 028

248 687

18 098

266 785

1994/95

41 970

215 800

257 770

19 310

277 080

1995/96

39 914

233 501

273 415

22 146

295 561

1996/97

40 540

245 540

286 080

22 640

308 720

1997/98

43 843

253 326

297 169

23 052

320 221

1998/99

39 176

253 094

292 270

23 419

315 689

1999/2000

32 983

267 060

300 043

22 125

322 168

2000/01

30 900

282 796

313 696

22 947

336 643

1

Lignite

Grand total

2001/02

28 668

299 119

327 787

24 814

352 601

2002/03

30 195

311 077

341 272

26 018

367 290

2003/04

29 401

331 845

361 246

27 958

389 204

2004/05

30 224

352 391

382 615

30 337

412 952

2005/06

31 511

375 502

407 013

30 066

437 079

2006/07

32 097

398 735

430 832

31 285

462 117

Source MoSPI (Ministry of Statistics and Programme Implementation). Energy Statistics 2007. New Delhi: MoSPI. Details available at

Table 8 Year

1

Consumption of petroleum products in India (’000 tonnes) Light distillates

Middle distillates

Liquefied Motor Naphtha petroleum gasoline gas 2 3 4

Kerosene Aviation turbine fuel 5 6

High speed diesel 7

Light diesel oil 8

1970/71

176

1 453

904

3 283

689

3 837

1 092

1971/72

212

1 527

1 164

3 517

758

4 340

1 200

Annexures

289

Table 8 Contd... Year

1

Light distillates

Middle distillates

Liquefied Motor Naphtha petroleum gasoline gas 2 3 4

Kerosene Aviation turbine fuel 5 6

High speed diesel 7

Light diesel oil 8

1972/73

244

1 592

1 297

3 516

816

4 770

1 436

1973/74

269

1 507

1 534

3 294

778

5 404

1 278

1974/75

289

1 264

1 713

2 828

836

6 950

1 070

1975/76

336

1 275

1 836

3 104

897

6 595

878

1976/77

368

1 316

2 196

3 322

956

7 106

1 082

1977/78

391

1 391

2 290

3 634

1 041

7 736

1 164

1978/79

408

1 499

2 515

3 952

1 154

8 638

1 216

1979/80

410

1 490

2 413

3 872

1 144

9 801

1 266

1980/81

405

1 522

2 325

4 228

1 125

10 345

1 122

1981/82

492

1 599

2 963

4 693

1 128

10 832

1 036

1982/83

601

1 722

2 958

5 214

1 145

12 013

1 067

1983/84

746

1 891

2 804

5 524

1 208

12 600

1 097

1984/85

953

2 084

3 125

5 959

1 336

13 696

1 198

1985/86

1 241

2 275

3 106

6 229

1 453

14 886

1 123

1986/87

1 497

2 505

3 249

6 645

1 603

16 009

1 156

1987/88

1 686

2 810

2 852

7 231

1 654

17 657

1 245

1988/89

1 962

3 052

3 364

7 731

1 713

18 795

1 437

1989/90

2 268

3 491

3 350

8 239

1 775

20 706

1 486

1990/91

2 415

3 545

3 446

8 423

1 677

21 139

1 506

1991/92

2 650

3 573

3 461

8 377

1 559

22 680

1 462

1992/93

2 866

3 595

3 382

8 478

1 565

24 293

1 407

1993/94

3 113

3 834

3 191

8 704

1 741

25 872

1 370

1994/95

3 434

4 141

3 400

8 964

1 903

28 261

1 369

1995/96

3 922

4 679

4 154

9 932

2 082

32 261

1 311

1996/97

4 267

4 955

4 030

10 153

2 154

35 019

1 223

1997/98

4 803

5 182

6 590

11 065

2 108

36 071

1 235

1998/99

5 352

5 507

8 891

12 243

2 112

37 217

1 278

1999/2000

6 421

5 909

10 801

11 898

2 197

39 295

1 512

2000/01

7 016

6 613

11 673

11 307

2 249

37 958

1 399

290

Energy Security and Economic Development in India

Table 8 Contd... Year

Light distillates

Middle distillates

Liquefied Motor Naphtha petroleum gasoline gas 2 3 4

1

Kerosene Aviation turbine fuel 5 6

High speed diesel 7

Light diesel oil 8

2001/02

7 728

7 011

11 728

10 432

2 256

36 546

1 592

2002/03

8 351

7 570

11 929

10 405

2 269

36 644

2 063

2003/04

9 305

7 897

11 860

10 230

2 484

37 074

1 619

2004/05

10 245

8 251

13 993

9 395

2 811

39 651

1 476

2005/06

10 456

8 647

12 194

9 541

3 296

40 191

883

2006/07

10 854

9 286

12 740

9 505

3 975

42 866

720

Table 9

Gross and net production of natural gas in India (million m3)

Year 1

Gross production 2

1970/71

1 445

1971/72 1972/73

Re-injected 3

Flared 4

Net production 5=2–3–4

36

762

647

1 535

49

768

718

1 565

141

653

771

1973/74

1 713

115

836

762

1974/75

2 041

139

951

951

1975/76

2 368

162

1 082

1 124

1976/77

2 428

190

857

1 381

1977/78

2 839

184

1 191

1 464

1978/79

2 812

148

953

1 711

1979/80

2 767

127

964

1 676

1980/81

2 358

67

769

1 522

1981/82

3 851

110

1 519

2 222

1982/83

4 936

91

1 888

2 957

1983/84

5 961

45

2 515

3 401

1984/85

7 241

48

3 052

4 141

1985/86

8 134

66

3 118

4 950

1986/87

9 853

63

2 715

7 075

1987/88

11 467

54

3 445

7 968

1988/89

13 217

84

3 883

9 250

Annexures

291

Table 9 Contd... Year 1

Gross production 2

Re-injected 3

Flared 4

Net production 5=2–3–4

1989/90

16 988

96

5 720

11 172

1990/91

17 998

102

5 131

12 765

1991/92

18 645

132

4 072

14 441

1992/93

18 060

90

1 854

16 116

1993/94

18 335

71

1 924

16 340

1994/95

19 468

23

2 108

17 337

1995/96

22 642

—

1 710

20 932

1996/97

23 256

—

1 932

21 324

1997/98

26 401

—

1 856

24 545

1998/99

27 428

—

1 722

25 706

1999/2000

28 446

—

1 561

26 885

2000/01

29 477

—

1 617

27 860

2001/02

29 714

—

1 677

28 037

2002/03

31 389

—

1 426

29 963

2003/04

31 962

—

1 056

30 906

2004/05

31 763

—

988

30 775

2005/06

32 202

—

877

31 325

2006/07

31 747

—

956

30 791

Source

MoSPI (Ministry of Statistics and Programme Implementation). Energy Statistics 2007. New Delhi: MoSPI. Details available at

Table 10 Year

Installed generating capacity of electricity in utilities and non-utilities in India (MW) Utilities Thermal 

1

2

Non-utilities *

Hydro Nuclear Total

3

4

5

Railways

6

Grand

SelfTotal generating industries # 7 8

total

9

1970/71

7 906

6 383

420

14 709

45

1 157

1 562

16 271

1971/72

8 223

6 611

420

15 254

59

1 577

1 636

16 890

1972/73

8 876

6 786

620

16 282

55

1 653

1 708

17 990

1973/74

9 058

6 966

640

16 664

60

1 733

1 793

18 457

292

Energy Security and Economic Development in India

Table 10 Contd... Year

Utilities Thermal *

Non-utilities Hydro Nuclear Total

Railways

6

Grand

SelfTotal generating industries # 7 8

total

1

2

3

4

5

9

1974/75

10 148

7 529

640

18 317

64

1 964

2 028

20 345

1975/76

11 013

8 464

640

20 117

61

2 071

2 132

22 249

1976/77

11 804

9 025

640

21 469

62

2 225

2 287

23 756

1977/78

13 009

10 020

640

23 669

62

2 444

2 506

26 175

1978/79

15 207

10 833

640

26 680

62

2 538

2 600

29 280

1979/80

16 424

11 384

640

28 448

62

2 800

2 862

31 310

1980/81

17 563

11 791

860

30 214

60

3 041

3 101

33 315

1981/82

19 312

12 173

860

32 345

60

3 376

3 436

35 781

1982/83

21 447

13 056

860

35 363

66

3 806

3 872

39 235

1983/84

24 388

13 856

1 095

39 339

68

4 298

4 366

43 705

1984/85

27 030

14 460

1 095

42 585

82

5 038

5 120

47 705

1985/86

29 967

15 472

1 330

46 769

85

5 419

5 504

52 273

1986/87

31 740

16 196

1 330

49 266

86

5 628

5 714

54 980

1987/88

35 560

17 265

1 330

54 155

87

6 258

6 345

60 500

1988/89

39 677

17 798

1 565

59 040

88

6 432

6 520

65 560

1989/90

43 763

18 308

1 565

63 636

109

8 007

8 116

71 752

1990/91

45 768

18 753

1 565

66 086

111

8 502

8 613

74 699

1991/92

48 086

19 194

1 785

69 065

133

9 168

9 301

78 366

1992/93

50 749

19 576

2 005

72 330

140

9 905

10 045

82 375

1993/94

54 369

20 379

2 005

76 753

148

10 575

10 723

87 476

1994/95

58 113

20 833

2 225

81 171

148

11 013

11 161

92 332

1995/96

60 083

20 986

2 225

83 294

158

11 629

11 787

95 081

1996/97

61 912

21 658

2 225

85 795

163

11 916

12 079

97 874

1997/98

64 972

21 905

2 225

89 102

162

13 004

13 166 102 268

1998/99

58 590

22 479

2 225

93 294

159

13 932

14 091 107 385

1999/2000 71 347

23 857

2 680

97 884

—

15 336

15 336 113 220

2000/01

73 613

25 153

2 860 101 626

—

16 157

16 157 117 783

2001/02

76 057

26 269

2 720 105 046

—

17 145

17 145 122 191

2002/03

78 390

26 767

2 720 107 877

—

18 363

18 363 126 240

Annexures

293

Table 10 Contd... Year

Utilities Thermal *

Non-utilities Hydro Nuclear Total

4

5

Railways

6

Grand

SelfTotal generating industries # 7 8

total

1

2

3

9

2003/04

80 457

29 507

2 720 112 684

—

18 740

18 740 131 424

2004/05

84 714

30 942

2 720 118 426

—

19 103

19 103 137 529

2005/06

88 601

32 326

3 360 123 287

—

21 468

21 468 145 755

2006/07

93 775

34 654

3 900 132 329

—

24 681

24 681 157 010

 

* From 1995/96 onwards, thermal also includes wind. #  Capacity regarding self-generating industries includes units of capacity 1 MW and above. Source MoSPI (Ministry of Statistics and Programme Implementation). Energy Statistics 2007. New Delhi: MoSPI. Details available at

Table 11 Year 1

Gross generation of electricity in utilities and non-utilities in India (GWh) Utilities Thermal * 2

Hydro Nuclear Total 3 4 5

Non-utilities Railways Others 6 7

Total 8

Grand total 9

1970/71

28 162

25 248

2 418

55 828

37

5 347

5 384

61 212

1971/72

31 712

28 024

1 190

60 926

43

5 415

5 458

66 384

1972/73

36 217

27 196

1 133

64 546

38

5 932

5 970

70 516

1973/74

35 321

28 972

2 396

66 689

40

6 067

6 107

72 796

1974/75

40 109

27 875

2 206

70 190

36

6 452

6 488

76 678

1975/76

43 303

33 302

2 626

79 231

38

6 657

6 695

85 926

1976/77

50 245

34 836

3 252

88 333

41

7 241

7 282

95 615

1977/78

51 090

38 007

2 272

91 369

39

7 520

7 559

98 928

1978/79

52 594

47 159

2 770 102 523

34

7 573

7 607 110 130

1979/80

56 273

45 477

2 877 104 627

36

8 157

8 193 112 820

1980/81

61 301

46 542

3 001 110 844

42

8 374

8 416 119 260

1981/82

69 515

49 565

3 021 122 101

45

8 979

9 024 131 125

1982/83

79 868

48 374

2 022 130 264

47

9 989

10 036 140 300

1983/84

86 677

49 954

3 546 140 177

48

10 769

10 817 150 994

1984/85

98 836

53 948

4 075 156 859

43

12 303

12 346 169 205

1985/86 114 347

51 021

4 982 170 350

43

12 997

13 040 183 380

1986/87 128 851

53 840

5 022 187 713

37

13 528

13 565 201 278

294

Energy Security and Economic Development in India

Table 11 Contd... Year 1

Utilities Thermal * 2

Hydro Nuclear Total 3 4 5

Non-utilities Railways Others 6 7

Total 8

Grand total 9

1987/88 149 614

47 444

5 035 202 093

35

16 855

16 890 218 983

1988/89 157 692

57 873

5 817 221 382

36

18 934

18 970 240 352

1989/90 178 697

62 116

4 625 245 438

29

23 197

23 226 268 664

1990/91 186 547

71 641

6 141 264 329

29

25 082

25 111 289 440

1991/92 208 747

72 757

5 525 287 029

22

28 580

28 602 315 631

1992/93 224 767

69 869

6 726 301 362

23

31 328

31 351 332 713

1993/94 248 189

70 463

5 398 324 050

23

32 262

32 285 356 335

1994/95 262 130

82 712

5 648 350 490

23

35 044

35 067 385 557

1995/96 299 316

72 579

7 982 379 877

24

38 142

38 166 418 043

1996/97 317 918

68 901

9 071 395 890

24

40 815

40 840 436 730

1997/98 337 082

74 582 10 083 421 747

27

44 051

44 078 465 825

1998/99 353 689

82 923 11 923 448 535

26

48 353

48 379 496 914

1999/2000 387 050

80 756 13 249 481 055

—

55 397

55 397 536 452

2000/01 409 940

74 362 16 902 501 204

—

59 638

59 638 560 842

2001/02 424 385

73 579 19 475 517 439

—

61 681

61 681 579 120

2002/03 449 289

64 014 19 390 532 693

—

63 850

63 850 596 543

2003/04 472 080

75 242 17 780 594 102

—

68 173

68 173 633 275

2004/05 492 835

84 610 17 011 594 456

—

71 417

71 417 665 8973

2005/06 505 001 101 494 17 324 623 819

—

73 640

73 640 697 459

2006/07 535 547 113 359 18 607 667 515

—

74 846

74 846 742 359

* 

From 1995/96 onwards, thermal includes wind also. Source MoSPI (Ministry of Statistics and Programme Implementation). Energy Statistics 2007. New Delhi: MoSPI. Details available at

Annexures

295

ANNEXURE 3 RESERVES OF COAL AS ON 1 APRIL 2008, BY STATE/COALFIELD (MT) State/coalfield

Proved

Indicated

Inferred

Total

All-India total

101 829.49

124 215.96

38 489.61

264 535.06

Gondawana coalfields

101 391.25

124 080.73

38 120.84

263 592.82

Andhra Pradesh

9 007.13

6 710.65

2 978.81

18 696.59

Godavari Valley

—

—

—

—

Assam/Singrimari

—

Bihar/Rajmahal

2.79

—

2.79

—

—

160.0

10 419.32

29 272.15

4 442.57

94.30

10.08

Sonhat

199.49

2 463.86

Jhilimili

228.20

38.90

—

267.10

Chirimiri

320.33

10.83

31.00

362.16

Bisrampur

733.44

765.55

—

1 498.99

41.75

—

41.75

85.84

—

451.40

11.00

—

11.00

Chhattisgarh Sohagpur

East Bisrampur Lakhanpur Panchbahini Hasdeo-Arand

— 365.56 —

— 1.89

104.38 2 665.24

1 183.36

2 946.68

152.89

126.32

Korba

4 980.58

4 499.90

830.18

10 310.66

Mand-Raigarh

2161.17

16 856.90

2 534.33

21 552.40

—

1 414.60

202.19

1 616.79

37 492.92

31 628.90

6 338.32

75 460.14

31.55

Sendurgarh

Tatapani/Ramkola Jharkhand Raniganj

842.98

160.00 44 134.04

—

4 972.96 279.21

1 538.19

466.56

15 077.57

4 352.49

East Bokaro

3 351.87

3 842.04

863.32

8 057.23

West Bokaro

3 488.10

1 482.47

34.42

5 004.99

446.27

545.15

58.05

1 049.47

North Karanpura

8 077.77

5 917.70

1 864.96

15 860.43

South Karanpura

2 620.41

1 985.73

1 508.88

6 115.02

Aurangabad

213.88

2 279.82

503.41

2 997.11

Hutar

190.79

26.55

32.48

249.82

83.86

60.10

—

143.96

Jharia

Ramgarh

Daltongunj

—

2 036.30 19 430.06

Contd...

296

Energy Security and Economic Development in India

Table contd...

State/coalfield Deogarh

Proved

Indicated

Inferred

326.24

73.60

Rajmahal

2 077.97

10 596.69

1 441.25

14 115.91

Madhya Pradesh

7 895.96

9 882.37

2 781.63

20 559.96

Johilla

185.08

104.09

32.83

322.00

Umaria

177.70

3.59

—

181.29

1 375.98

736.71

316.78

2 429.47 446.93

Pench-Kanhan Pathakhera Gurgunda

290.80 —

—

Total 399.84

88.13

68.00

47.39

—

47.39

—

—

7.83

Mohpani

7.83

Sohagpur

1 622.03

2 889.05

197.46

4 708.54

Singrauli

4 236.54

6 013.41

2 166.56

12 416.51

Maharashtra

5 004.26

2 821.66

1 992.17

9 818.09

Wardha Valley

3 092.98

1 258.48

1 466.73

5 818.19

Kamthi

1 276.14

1 079.23

505.44

2 860.81

Umrer

308.41

Nand Bander

316.73

Bokhara

10.00

— 483.95 —

—

308.41

—

800.68

20.00

30.00

Odisha

19 221.59

31 728.09

14 313.66

65 263.34

Ib-River

5 459.51

9 778.95

7 183.33

22 421.79

Talcher

13 762.08

21 949.14

7 130.33

4 2841.55

765.98

295.82

Uttar Pradesh/Singrauli Sikkim/Rangit Valley

—

—

1061.80

58.25

42.98

101.23

West Bengal

11 584.09

11 680.05

5 070.70

28 334.84

Raniganj

11 469.82

7 608.82

4 443.91

23 522.55

—

—

Barjora

114.27

114.27

Birbhum

—

4 071.23

611.79

4 683.02

Darjeeling

—

—

15.00

15.00

Tertiary coalfields

438.24

135.23

368.77

942.24

Assam

314.59

24.04

34.01

372.64

Makum

304.87

9.85

1.19

315.91

Dilli-Jeypore

9.03

14.19

30.80

54.02

Mikir Hills

0.69

—

2.02

2.71 Contd...

Annexures

297

Table contd...

State/coalfield

Proved

Indicated

Inferred

Total

Arunachal Pradesh/Namchik

31.23

40.11

18.89

90.23

Meghalaya

88.99

69.73

300.71

459.43

West Darangiri

64.47

62.53

Balphakram-Pendengu

—

—

107.03

107.03

Siju

—

—

125.00

125.00

Langrin

11.34

Mawlong Shelia

2.17

7.20

—

127.00

31.46

50.00

—

3.83

6.00

Khasi Hills

—

—

7.09

7.09

Bapung

11.01

—

22.65

33.66

Jayanti Hills

—

—

3.65

3.65

Nagaland

3.43

1.35

15.16

19.94

Borjan

3.43

1.35

5.22

10.00

2.08

2.08

Jhanzi-Disai

—

—

Tiensang

—

—

1.26

1.26

Tiru Valley

—

—

6.60

6.60

Source CCO (Coal Controller’s Organization). 2009. Coal Directory ofIndia 2007/08. Kolkata: CCO

Bioenergy for power Biomass gasification  (biogas) Gasification is a process in which oxygen-deficient thermal decomposition of organic matter (coal, oil or biomass) produces noncondensable fuel or synthetic gases. Gasification combines pyrolysis with partial combustion to provide heat for endothermic decomposition reactions. Gasification technologies offer an opportunity to use biomass more efficiently, especially when used in the CHP mode.

• Biomass is converted to combustible gas for use in internal combustion engines for mechanical or electrical applications. • Capacities in the range of 10 kg/h to about 500 kg/h. • Possible to meet rural electricity needs and feed into grid. • Requires sustainable supply of biomass.

Features • Small-scale gasifiers (of 20–500 kW) have the potential to meet all the rural electricity needs and leave a surplus to feed into the national grid. • Diesel savings of up to 80% possible in dual-fuel systems and 100% diesel savings possible in 100% producer gas. • Rural employment generation. • Degraded land reclamation. • Fossil fuel substitution. • Carbon sequestration due to forestry in degraded lands.

Benefits

KEY BIOENERGY TECHNOLOGIES FOR POWER

Bioenergy technologies

ANNEXURE 4

Contd...

Gasifier engine and distribution An active grid is a necessity. But in a rural set-up, this is not well established. Dedicated 11 kV lines are essential. Maintenance costs are high. Engines running on 100% producer gas are still not common. Biomass drying techniques not well established. Biomass • Absence of package of practices and quality seed material or clones for high high yielding energy plantations. • Sizing techniques (choppers, cutters) used have low processing capacity and are not very safe. • Poor understanding of managing moisture content. • Biomass drying techniques are not well established.

Barriers

298 Energy Security and Economic Development in India

Cogeneration for power

Table contd...

Biomass combustion/or cogeneration Cogeneration facility is defined as one which simultaneously produces two or more forms of useful energy such as electrical power and steam or electrical power and shaft power by the use of fuel. Use of conventional combustion technology is made for producing stream through burning of bagasse. The sugar mills usually generate power by burning bagasse. The bagasse produced during the crushing season within a sugar mill is burnt in the boiler to generate high pressure superheated steam (87 apa and 575°C). Steam thus made available is fed into the steam turbine, which in turn is coupled to an alternator to produce power. The outlet steam from the turbine coming at a lower pressure is used for processing sugar cane juice to derive sugar. In India, sugar mills have almost always cogenerated steam and electricity using bagasse produced during crushing.

Bioenergy technologies

• Requires sustainable supply of biomass.

• Possible to meet rural electricity needs and feed into grid.

• Biomass is burnt in a boiler to generate steam, which is used to

Features • Degraded land reclamation. • Fossil fuel substitution. • Carbon sequestration due to forestry in degraded lands. • Relatively more economical. • Employment generation.

Benefits

Contd...

• Do not have supply of systems in capacities less than 2 MW. • The present biomass combustion system is not very flexible with varying fuel quality and quantity. • Negative impact on fuel gas cleaning. • Operational risks of boilers. Energy plantations Techniques for bailing and sizing of biomass are yet to be established (choppers, cutters) operational risks of boilers.

Barriers

Annexures 299

Bioenergy technologies

Features

Efficient cook stoves fuelled by small pieces of wood or special pellets made from dried and compressed agricultural waste.

Bioenergy technology Biofuels: for transport Extracting oil from nonedible seeds in plants like Jatropha curcas, Neem, Mahua, and other wild plants; to be mixed with diesel/petrol.

Cooking stove

• Can reduce wood consumption by 50% or more.

• Emits less smoke and gives more energy than dried wood or cow dung cakes

• Large experience of dissemination.

• High cost but economical.

Bioenergy technology Biogas is an excellent energy • Biogas is produced when for cooking source for individual institutions organic materials such as with cattle owner-ship. Biogas can cattle dung are digested in be used in a specially designed the absence of air. burner for clean cooking without • Ideal fuel for cooking. indoor air pollution. • Simple and indigenous technology.

Table contd...

• Self-reliance. • Transport fuel demands can be met. • Fossil fuel substitution and, therefore, green-house gas mitigation.

• Forest plantation and village tree conservation. • Large improvements in quality of life, especially of women. • Moderate forest carbon sink conservation potential. • Can be one of the most cost-effective global and local pollutants.

• Forest plantation and tree conservation. • Reduced indoor air pollution. • Large improvements in quality of life. • High forest carbon sink conservation potential due to fuelwood savings. • Low cost of device.

Benefits

Technology not fully evolved in India; land and water constraints.

• Biogas units are less successful in the interiors of villages due to difficulties in arranging for land and water required for the plant. • Biogas plants are successful in homes situated on village outskirts or in fields.

Barriers

300 Energy Security and Economic Development in India

Annexures

ANNEXURE 5

301

AVERAGE WATER FOOTPRINT OF ENERGY

Operation

Average water footprint (m3/GJ)

Coal Surface mining

0.004

Deep mining

0.012

Slurry pipelines

0.063

Beneficiation

0.004

Other plant operations

0.090

Total (average)

0.164

Uranium Opencast uranium mining

0.020

Underground uranium mining

0.000

Uranium milling

0.009

Uranium hexafluoride conversion

0.004

Uranium enrichment: gaseous diffusion

0.012

Uranium enrichment: gas centrifuge

0.002

Fuel fabrication

0.001

Nuclear fuel processing

0.050

Total (average)

0.086

Crude oil Onshore oil exploration

0.000

Onshore oil extraction and production

0.006

Enhanced oil recovery

0.120

Water flooding

0.600

Thermal steam injection

0.140

Forward combustion/air injection

0.050

Micellar polymer

8.900

Caustic injection

0.100

Carbon dioxide

0.640

Oil refining (traditional)

0.045

Oil refining (reforming and hydrogenation)

0.090

Other plant operations

0.070

Total (average)

1.058

302

Energy Security and Economic Development in India

Table contd...

Natural gas Gas processing

0.006

Pipeline operation

0.003

Plant operations

0.100

Total (average)

0.109

Other Electricity from hydropower (in m3/MWh)

5.4*

Electricity from solar active space heat

0.265 (0.954 m3/MWh)

Electricity from wind energy

0.000

* The values for hydropower water consumption are based on median evaporation rates calculated by Gleick (1994). On a global scale, an agreed scientific method for measurement of net evaporation rates from hydropower reservoirs has not yet been established, and evaporation rates might vary considerably from case to case. Source Water Footprint of Bioenergy and other Primary Energy Carriers UNESCO-IHE 2008; Gleick 1994

Annexures

303

ANNEXURE 6 CALCULATION OF TRENDS IN INDIA’S ENERGY SECURITY Table 1

Energy security in terms of imports in India

Variable

Coefficient

Standard error

t-statistic

Probability

C

0.071697

0.093075

0.770321

0.4486

D1

0.024755

0.079913

0.309780

0.7594

D2

−0.023338

0.091160

−0.256009

0.8001

Time

−0.007244

0.005243

−1.381782

0.1798

D1T

0.012681

0.004281

2.962287

0.0068

D2T

0.000650

0.004281

0.151819

0.8806

R-squared

0.936436

Mean dependent variable

0.140373

Adjusted R-squared

0.923193

SD dependent variable

0.099204

SE of regression

0.027493

Akaike info criterion

−4.172888

Sum squared residue

0.018141

Schwarz criterion

−3.892648

F-statistic

70.71390

Log likelihood

68.59332

Durbin–Watson statistic

1.714673

Probability (F-statistic)

0.000000

Dependent variable: ESIM Method: Least squares Sample: 1980/81 to 2009/10 Included observations: 30

Table 2 Energy security in terms of production in India Variable

Coefficient

Standard error

t-statistic Probability

C

1.423838

0.462913

3.075825

0.0052

D1

−0.293793

0.397452

−0.739192

0.4670

D2

−0.683694

0.453390

−1.507959

0.1446

Time

0.002869

0.026075

0.110032

0.9133

D1T

−0.034065

0.015122

−2.252678

0.0612

1.529596

D2T

0.032566

0.021290

R-squared

0.734092

Mean dependent variable

0.687606

Adjusted R-squared

0.678695

SD dependent variable

0.241233

SE of regression

0.136740

Akaike info criterion

−0.964615

Sum squared residue

0.448747

Schwarz criterion

−0.684376

F-statistic

13.25137

Log likelihood

20.46923

Durbin–Watson statistic Dependent variable: ESIP Method: Least squares Sample: 1980/81 to 2009/10 Included observations: 30

1.394357

Probability (F-statistic)

0.1392

0.000003

304

Energy Security and Economic Development in India

Table 3 Growth rates in energy consumption (coal) Variable

Coefficient Standard error

t-statistic

Probability

C

4.538114

0.102095

44.44994

0.0000

D1

−0.268080

0.087658

−3.058264

0.0054

D2

−0.640689

0.099995

−6.407227

0.0000

0.033284

0.005751

5.787648

0.0000

1T

−0.003202

0.000396

D2T

0.027394

0.004696

R-squared

0.995083

Mean dependent variable

Time

−76.26262

0.0000

5.833974

0.0000 4.687479

Adjusted R-squared

0.994059

SD dependent variable

SE of regression

0.030158

Akaike info criterion

−3.987886

Sum squared residue

0.021828

Schwarz criterion

−3.707647

Log likelihood 65.81829 Durbin–Watson statistic 1.449318

0.391262

F-statistic Probability (F-statistic)

971.4529 0.000000

Dependent variable: LCOAL Method: Least squares Sample: 1980/81 to 2009/10 Included observations: 30

Table 4 Growth rates in energy consumption (lignite) Variable

Coefficient

Standard error

t-statistic Probability

C

−0.507602

0.452682

−1.121321 0.2732

D1

1.446552

0.388668

3.721818 0.0011

D2

0.411051

0.443370

0.927106 0.3631

Time

0.178784

0.025499

7.011411 0.0000

D1T

−0.126974

0.020820

−6.098680 0.0000

D2T

−0.021215

0.000820

−25.87195

0.0000

R-squared

0.965924

Mean dependent variable

1.547420

Adjusted R-squared

0.958825

SD dependent variable

0.658981

SE of regression

0.133718

Akaike info criterion

−1.009312

Sum squared residue

0.429132

Schwarz criterion

−0.729072

Log likelihood

21.13968

Durbin–Watson statistic Dependent variable: LLIGNITE Method: Least squares Sample: 1980/81 to 2009/10 Included observations: 30

1.532814

F-statistic Probability (F-statistic)

136.0622 0.000000

Annexures

305

Table 5 Growth rates in energy consumption (oil) Variable

Coefficient

Standard error

C

2.812085

0.053540

52.52309

0.0000

D1

0.501083

0.045969

10.90049

0.0000

Time

0.098777

0.003016

32.75285

0.0000

D2

0.670722

0.052439

12.79061

0.0000

D1T

−0.028533

0.002462

−11.58755

0.0000

D2T

−0.035710

0.002462

−14.50201

0.0000

R-squared

0.999034

t-statistic Probability

Mean dependent variable

4.365375

Adjusted R-squared

0.998833

SD dependent variable

SE of regression

0.015815

Akaike info criterion

−5.278836

Sum squared residue

0.006003

Schwarz criterion

−4.998596

Log likelihood

85.18253

Durbin–Watson statistic 1.984529

0.462899

F-statistic

4963.995

Probability (F-statistic)

0.000000

Dependent variable: LOIL Method: Least squares Sample: 1980/81 to 2009/10 Included observations: 30

Table 6 Growth rates in energy consumption (petroleum) Variable

Coefficient

Standard error

t-statistic

Probability

C

9.702931

0.553455

17.53158

0.0000

D1

0.387857

0.529247

0.732848

0.4722

Time

0.076872

0.026611

2.888686

0.0091

D2

0.157899

0.549774

0.287208

0.7769

D1T

−0.059755

0.024550

−2.434011

0.0244

D2T

−0.010378

0.004550

−2.208791

0.0677

R-squared

0.754719

Mean dependent variable

Adjusted R-squared

0.693399

SD dependent variable

SE of regression

0.093281

Akaike info criterion

−1.707220

Sum squared residue

0.174028

Schwarz criterion

−1.416890

F-statistic

12.30783

Log likelihood

28.19386

Durbin–Watson statistic 1.001361

Probability (F-statistic)

Dependent variable: LPET Method: Least squares Sample: 1980/81 to 2009/10 Included observations: 26 (after adjustments)

10.31803 0.168464

0.000015

306

Energy Security and Economic Development in India

Table 7 Growth rates in energy consumption (natural gas) Variable

Coefficient

Standard error

t-statistic Probability

C

0.413361

0.336498

1.228422

0.2312

D1

1.347392

0.288913

4.663656

0.0001

Time

0.207613

0.018954

10.95326

0.0000

D2

0.137030

0.329575

0.415776

0.6813

D1T

−0.136286

0.015476

−8.806107

0.0000

D2T

−0.011469

0.005476

−2.094419

0.0660

R-squared

0.988712

Mean dependent variable

2.639903

Adjusted R-squared

0.986360

SD dependent variable

0.851078

SE of regression

0.099398

Akaike info criterion

−1.602511

Sum squared residue

0.237120

Schwarz criterion

−1.322272

Log likelihood

30.03767

Durbin–Watson statistic 1.105809

F-statistic

420.4173

Probability (F-statistic)

0.000000

Dependent variable: LNGAS Method: Least squares Sample: 1980/81 to 2009/10 Included observations: 30

Table 8 Growth rates in energy consumption (hydropower) Variable

Coefficient

Standard error

t-statistic Probability

C

3.211658

0.294867

10.89188

D1

−1.505587

0.253170

−5.946942 0.0000

Time

−0.046843

0.016609

−2.820265 0.0095

D2

−1.855465

0.288801

−6.424708 0.0000

0.0000

D1T

0.056888

0.013562

4.194753 0.0003

D2T

0.079987

0.013562

5.898035 0.0000

R-squared

0.934973

Mean dependent variable

1.848881

Adjusted R-squared

0.921426

SD dependent variable

0.310730

SE of regression

0.087101

Akaike info criterion

−1.866642

Sum squared residue

0.182078

Schwarz criterion

−1.586403

F-statistic

69.01581

Log likelihood

33.99964

Durbin–Watson statistic Dependent variable: LHP Method: Least squares Sample: 1980/81 to 2009/10 Included observations: 30

1.912820

Probability (F-statistic)

0.000000

Annexures

307

Table 9 Growth rates in energy consumption (nuclear power) Variable

Coefficient Standard error

t-statistic Probability

C

−2.481825

0.610217

−4.067116 0.0004

D1

1.351409

0.523926

2.579388 0.0165

Time

0.191505

0.034373

5.571407 0.0000

D2

2.073864

0.597664

3.469947 0.0020

D1T

−0.066440

0.028065

−2.367351 0.0263

D2T

−0.099205

0.028065

−3.534815 0.0017

R-squared

0.944846

Mean dependent variable

0.836872

Adjusted R-squared

0.933355

SD dependent variable

SE of regression

0.180252

Akaike info criterion

−0.412062

Sum squared residue

0.779781

Schwarz criterion

−0.131823

F-statistic

82.22830

Log likelihood

12.18093

Durbin–Watson statistic

1.505549

0.698228

Probability (F-statistic)

0.000000

Dependent variable: LNP Method: Least squares Sample: 1980/81 to 2009/10 Included observations: 30

Table 10 Growth rates in energy consumption (wind power) Variable

Coefficient

Standard error

t-statistic Probability

C

0.533445

3.195810

0.166920

0.8688

D1

−5.663551

2.743889

−2.064060

0.0500

Time

−0.053037

0.008016

−6.654752

0.0000

D2

−0.533445

3.130069

−0.170426

0.8661

D1T

0.195753

0.046982

4.166553

0.0395

D2T

0.053037

0.016982

3.123130

0.0538

R-squared

0.706752

Mean dependent variable

Adjusted R-squared

0.645658

SD dependent variable

1.585865

SE of regression

0.944011

Akaike info criterion

2.899499

Schwarz criterion

3.179739

Sum squared residue

21.38778

Log likelihood −37.49249 Durbin–Watson statistic 2.185642 Dependent variable: LWP Method: Least squares Sample: 1980/81 to 2009/10 Included observations: 30

F-statistic Probability (F-statistic)

−1.196624

11.56839 0.000009

308

Energy Security and Economic Development in India

Table 11 Growth rates in energy consumption (total energy) Variable

Coefficient Standard error

t-statistic Probability

C

3.775690

0.812507

4.646960

0.0001

Time

0.039783

0.005768

6.897191

0.0000

D1

0.597057

0.697610

0.855860

0.4005

D2

0.717344

0.795793

0.901420

0.3763

D1T

0.041793

0.007369

5.671761

0.0000

D2T

−0.036432

0.007369

−4.943954

0.0001

R-squared

0.921070

Mean dependent variable

5.463304

Adjusted R-squared

0.904626

SD dependent variable

0.777156

SE of regression

0.240007

Akaike info criterion

0.160558

Sum squared residue

1.382479

Schwarz criterion

0.440797

Log likelihood

3.591636

F-statistic

Durbin–Watson statistic

1.333559

Probability (F-statistic)

56.01316 0.000000

Dependent variable: LTOTALENERGY Method: Least squares Sample: 1980/81 to 2009/10 Included observations: 30

Table 12 Growth rates in energy consumption (commercial energy) Variable

Coefficient Standard error

t-statistic Probability

C

4.333521

0.276897

Time

0.040625

0.015597

2.604608 0.0155

D1

0.287568

0.237741

1.209586 0.2382

D2

−0.141467

0.271201

−0.521633 0.6067

D1T

0.011219

0.002735

4.102010 0.0002

D2T

0.003769

0.000735

5.127891 0.0000

R-squared

0.986533

Mean dependent variable

5.252872

Adjusted R-squared

0.983728

SD dependent variable

0.641197

SE of regression

0.081793

Akaike info criterion

−1.992400

Sum squared residue

0.160561

Schwarz criterion

−1.712161

Log likelihood

35.88600

Durbin–Watson statistic 1.354182 Dependent variable: LCOMENERGY Method: Least squares Sample: 1980/81 to 2009/10 Included observations: 30

F-statistic Probability (F-statistic)

15.65029

0.0000

351.6357 0.000000

Annexures

309

Table 13 Growth rates in energy production (total energy) Variable

Coefficient Standard error

t-statistic Probability

C

3.681965

0.794432

4.634712 0.0001

Time

0.048272

0.004749

D1

0.590333

0.682091

0.865475 0.3953

D2

0.759526

0.778090

0.976142 0.3387

D1T

0.026875

0.006538

4.110584 0.0001

D2T

−0.037893

0.006538

−5.795809 0.3100

10.16466

0.0000

R-squared

0.899640

Mean dependent variable

5.305821

Adjusted R-squared

0.878732

SD dependent variable

0.673877

SE of regression

0.234668

Akaike info criterion

0.115563

Sum squared residue

1.321653

Schwarz criterion

0.395803

Log likelihood

4.266553

F-statistic

Durbin–Watson statistic 1.349269

43.02804

Probability (F-statistic)

0.000000

Dependent variable: LPENERGY Method: Least squares Sample: 1980/81 to 2009/10 Included observations: 30

Table 14 Growth rates in energy imports (total energy) Variable

Coefficient Standard error

t-statistic Probability

C

0.417527 1.788686

0.233426

Time

−0.127279 0.007540

−16.88050

0.8174 0.0000

D1

1.653720 1.535747

1.076818

0.2923

D2

0.857180 1.751891

0.489288

0.6291

D1T

0.245687 0.082266

2.986514

0.0064

D2T

−0.046545 0.002266

−20.54060

0.0000

R-squared

0.945036 Mean dependent variable

2.995403

Adjusted R-squared

0.933586 SD dependent variable

2.050216

SE of regression

0.528360 Akaike info criterion

1.738780

Sum squared residue

6.699955 Schwarz criterion

2.019020

Log likelihood

−20.08171

F-statistic

Durbin–Watson statistic 1.433707 Probability (F-statistic) Dependent variable: LMENERGY Method: Least squares Sample: 1980/81 to 2009/10 Included observations: 30

82.53060 0.000000

310

Energy Security and Economic Development in India

Table 15 Energy elasticity in India (total energy) Variable

Coefficient

Standard error

t-statistic Probability

C

21.42607

2.330767

9.192710

0.0000

D1

−9.846606

2.231188

−4.413167

0.0002

D2

−7.923254

2.270545

−3.489582

0.0020

LTOTALENERGY

−1.306994

0.386603

−3.380717

0.0026

D1LTOTALENERGY

1.758363

0.367707

4.781967

0.0001

D2LTOTALENERGY

1.327157

0.368664

3.599911

0.0015

R-squared

0.954351

Mean dependent variable

Adjusted R-squared

0.944427

SD dependent variable

SE of regression

0.115765

Akaike info criterion

0.308236

Schwarz criterion

−1.009627

F-statistic

96.16807

Sum squared residue Log likelihood Durbin–Watson statistic

24.74148 1.213431

14.12305 0.491072 −1.292516

Probability (F-statistic)

0.000000

Dependent variable: LGDP Method: Least squares Sample: 1980/81 to 2009/10 Included observations: 29 (after adjustments)

Table 16 Elasticity of commercial energy Variable

Coefficient

Standard error

t-statistic

Probability

C

12.81521

1.377511

9.303162

0.0000

D1

−4.716798

1.131848

−4.167343

0.0004

D2

−1.869586

1.264198

−1.478871

0.1527

LCOMENERGY

0.261709

0.054244

4.824662

0.0001

D1LCOMENERGY

0.849051

0.209063

4.061227

0.0005

D2LCOMENERGY

0.335231

0.022382

R-squared

0.983825

Mean dependent variable

Adjusted R-squared

0.980309

SD dependent variable

SE of regression

0.068910

Akaike info criterion

−2.330053

Sum squared residue

0.109216

Schwarz criterion

−2.047164

Log likelihood

39.78576

F-statistic

Dependent variable: LGDP Method: Least squares Sample: 1980/81 to 2009/10 Included observations: 29 (after adjustments)

14.97770

0.0000 14.12305 0.491072

279.7934

Annexures

311

Table 17 Elasticity of non-commercial energy Variable C

Coefficient 7.758821

t-statistic Probability

7.181669

1.080365

0.2942

3.246056

−5.763449

0.0000

D2

5.859577

7.181597

0.815915

0.4252

LNONCOENERGY

1.160687

0.069843

D1LNONCOENERGY

4.018860

0.650499

6.178121

0.0000

D2LNONCOENERGY

−1.213488

0.469681

−3.825681

0.0198

D1

−18.70848

Standard error

16.61851

R-squared

0.974816

Mean dependent variable

Adjusted R-squared

0.967820

SD dependent variable

SE of regression

0.096509

Akaike info criterion

0.167652

Schwarz criterion

Sum squared residue Log likelihood Durbin–Watson statistic

25.51248 0.885789

0.4400

14.14373 0.537990 −1.626040 −1.331527

F-statistic

139.3451

Probability (F-statistic)

0.000000

Dependent variable: LGDP Method: Least squares Sample: 1980/81 to 2009/10 Included observations: 24 (after adjustments)

Table 18 Energy intensity in India (total energy) Variable C

Coefficient −10.00315

Standard error 0.894899

t-statistic Probability −11.17796

0.0000

D1

1.162579

0.792857

1.466317

0.1561

D2

1.179745

0.879864

1.340826

0.1931

Time

0.009117

0.002364

3.856598

0.0501

D1T

0.013711

0.000571

24.01225

0.0000

D2T

−0.056192

0.000571

−98.40980

0.0000

R-squared

0.662963

Mean dependent variable

Adjusted R-squared

0.589695

SD dependent variable

−8.694650 0.373297

SE of regression

0.239116

Akaike info criterion

0.158253

Sum squared residue

1.315055

Schwarz criterion

0.441142

Log likelihood Durbin–Watson statistic

3.705332 1.362485

F-statistic Probability (F-statistic)

9.048368 0.000073

Dependent variable: LENERGYINTENSITY Method: Least squares Sample: 1980/81 to 2009/10 Included observations: 29 (after adjustments)

312

Energy Security and Economic Development in India

Table 19 Energy elasticity of coal Variable

Coefficient

Standard error

t-statistic Probability

C

8.915255

1.119845

7.961154

0.0000

1.046912

0.235609

4.443431

0.0002

D1

−2.421611

0.744614

−3.252169

0.0035

D2

1.204976

1.044967

1.153124

0.2607

D1LCOAL

0.564105

0.156003

3.615977

0.0015

D2LCOAL

−0.225966

0.215575

−1.048199

0.3054

LCOAL

R-squared

0.990560

Mean dependent variable

Adjusted R-squared

0.988508

SD dependent variable

SE of regression

0.052644

Akaike info criterion

0.063742

Schwarz criterion

Sum squared residue Log likelihood

47.59375

Durbin–Watson statistic 1.207574

14.12305 0.491072 −2.868534 −2.585645

F-statistic

482.6804

Probability (F-statistic)

0.000000

Dependent variable: LGDP Method: Least squares Sample: 1980/81 to 2009/10 Included observations: 29 (after adjustments)

Table 20 Energy elasticity of lignite Variable

Coefficient

Standard error

t-statistic

Probability

C

14.92936

0.667724

22.35857

0.0000

LLIGNITE

−0.568063 0.331669

−1.712744

0.1002

D1

−2.421612 0.602061

−4.022203

0.0005

D2

−1.543100 0.665862

−2.317447

0.0297

D1LLIGNITE

1.495821 0.287689

5.199432

0.0000

D2LLIGNITE

0.837548 0.327152

2.560116

0.0175

R-squared

0.975516 Mean dependent variable

Adjusted R-squared

0.970193 SD dependent variable

14.12305 0.491072

SE of regression

0.084782 Akaike info criterion

−1.915467

Sum squared residue

0.165325 Schwarz criterion

−1.632578

Log likelihood

33.77427

F-statistic

Durbin–Watson statistic 0.837215 Probability (F-statistic) Dependent variable: LGDP Method: Least squares Sample: 1980/81 to 2009/10 Included observations: 29 (after adjustments)

183.2742 0.000000

Annexures

313

Table 21 Elasticity of natural gas Variable

Coefficient

Standard error

t-statistic Probability

C

13.17354

0.784330

16.79591

0.0000

D1

−1.315420

0.669603

−1.964477

0.0617

D2

0.006964

0.779056

0.008939

0.9929

LNGAS

0.200178

0.248213

0.806475

0.4282

D1LNGAS

0.590307

0.203507

2.900671

0.0081

D2LNGAS

0.053494

0.242565

0.220535

0.8274

R-squared

0.969759

Mean dependent variable

Adjusted R-squared

0.963185

SD dependent variable

SE of regression

0.094223

Akaike info criterion

0.204193

Schwarz criterion

Sum squared residue Log likelihood Durbin–Watson statistic

30.71259 0.902249

14.12305 0.491072 −1.704317 −1.421428

F-statistic

147.5128

Probability (F-statistic)

0.000000

Dependent variable: LGDP Method: Least squares Sample: 1980/81 to 2009/10 Included observations: 29 (after adjustments)

Table 22 Energy elasticity of oil Variable

Coefficient

Standard error

t-statistic

C

16.61075

0.427154

38.88700

0.0000

D1

−6.150765

0.401248

−15.32908

0.0000

D2

−6.072354

0.402704

−15.07897

LOIL

−0.498959

0.092030

−5.421673

0.0000

D1LOIL

1.331302

0.085816

15.51340

0.0000

D2LOIL

1.296778

0.084198

15.40160

0.0000

R-squared

0.998453

Mean dependent variable

Adjusted R-squared

0.998117

SD dependent variable

SE of regression

0.021311

Akaike info criterion

−4.677153

Sum squared residue

0.010446

Schwarz criterion

−4.394265

Log likelihood

73.81873

Durbin–Watson statistic 1.506805

F-statistic Probability (F-statistic)

Dependent variable: LGDP Method: Least squares Sample: 1980/81 to 2009/10 Included observations: 29 (after adjustments)

Probability

0.0000

14.12305 0.491072

2968.793 0.000000

314

Energy Security and Economic Development in India

Table 23 Energy elasticity of petroleum Variable

Coefficient Standard error

t-statistic Probability

C

18.99202

23.12886

0.821139

0.4212

D1

−17.07388

22.61840

−0.754867

0.4591

D2

−11.10421

23.05682

−0.481602

0.6353

−0.548105 0.223134

−2.456393

0.0058

D1LPETL

1.726711 2.173615

0.794396

0.4363

D2LPETL

1.106062 2.215971

0.499132

0.6231

R-squared

0.930207 Mean dependent variable

Adjusted R-squared

0.912758 SD dependent variable

SE of regression

0.124703 Akaike info criterion

−1.126592

Sum squared residue

0.311016 Schwarz criterion

−0.836262

LPET

Log likelihood Durbin–Watson statistic

20.64569

14.02771 0.422197

F-statistic

53.31213

1.208658 Probability (F-statistic)

0.000000

Dependent variable: LGDP Method: Least squares Sample: 1980/81 to 2009/10 Included observations: 26 (after adjustments)

Table 24 Energy elasticity of hydropower Variable

Coefficient Standard error

t-statistic Probability

C

11.06230

1.292597

8.558192

0.0000

D1

0.976040 0.630646

1.547683

0.1353

D2

1.031939 1.191733

0.865915

0.3955

LHP

1.310333 0.071085

D1LHP

−0.190116 0.072130

D2LHP

−0.335642 0.032549

18.43332

0.0000

−2.635741

0.0543

−10.31189

0.0000

R-squared

0.946417 Mean dependent variable

Adjusted R-squared

0.934769 SD dependent variable

SE of regression

0.125422 Akaike info criterion

−1.132279

Sum squared residue

0.361804 Schwarz criterion

−0.849391

Log likelihood Durbin–Watson statistic

22.41805

F-statistic

1.157984 Probability (F-statistic)

Dependent variable: LGDP Method: Least squares Sample: 1980/81 to 2009/10 Included observations: 29 (after adjustments)

14.12305 0.491072

81.24857 0.000000

Annexures

315

Table 25 Elasticity of nuclear power Variable

Coefficient

Standard error

t-statistic

Probability

C

12.28381

0.671990

18.27976

0.0000

D1

1.493217

0.664000

2.248819

0.0344

D2

1.273376

0.670417

1.899378

0.0701

LNP

1.016147

0.463252

2.193507

0.0386

D1LNP

−0.586884

0.448555

−1.308388

0.2037

D2LNP

−0.649081

0.442333

−1.467406

0.1558

R-squared

0.934492

Mean dependent var

Adjusted R-squared

0.920251

SD dependent var

SE of regression

0.138678

Akaike info criterion

0.442326

Schwarz criterion

−0.648445

F-statistic

65.62041

Sum squared residue Log likelihood

19.50434

Durbin–Watson statistic 0.653574

14.12305 0.491072 −0.931333

Probability (F-statistic)

0.000000

Dependent variable: LGDP Method: Least squares Sample: 1980/81 to 2009/10 Included observations: 29 (after adjustments)

Table 26 Energy elasticity of wind power Variable C

Coefficient Standard error 14.23870

0.097253

t-statistic Probability 146.4093

0.0000

D2

0.691219 0.121663

5.681439 0.0000

LWP

0.039337 0.019634

2.003514 0.0532

D2LWP

0.261421 0.082253

3.178252 0.0062

R-squared

0.868793 Mean dependent variable

Adjusted R-squared

0.842552 SD dependent variable

SE of regression

0.140735 Akaike info criterion

−0.899210

Sum squared residue

0.297096 Schwarz criterion

−0.700381

Log likelihood Durbin–Watson statistic

12.54250

F-statistic

0.485215 Probability (F-statistic)

Dependent variable: LGDP Method: Least squares Sample: 1980/81 to 2009/10 Included observations: 19 (after adjustments)

14.40161 0.354678

33.10778 0.000001

316

Energy Security and Economic Development in India

Table 27 Energy elasticity, economic growth, and energy growth in India Year

1980–85 to 1990/91 to 2000/01 to GDP Energy Projected 1989/90 2000/01 2009/10 growth consumption energy growth demand (MTOE)

Total energy consumption

0.09

1.47

0.56

10%

0.56 × 10% = 5.6%

685.45

Commercial energy

0.87

0.87

0.68

10%

0.68 × 10% = 6.8%

520.29

Non-commercial energy

0.86

0.19

0.25

10%

0.25 × 10% = 2.5

165.98

Coal

0.96

0.62

0.72

10%

0.72 × 10% = 7.2

234.77

Lignite

—

1.07

0.57

10%

0.57 × 10% = 5.7

9.59

Natural gas

5.0

1.26

1.19

10%

1.19 × 10% = 11.9%

55.42

Oil

—

0.27

0.23

10%

0.23 × 10% = 2.3%

153.45

Petroleum

—

0.85

0.44

10%

0.44 × 10% 35 483.47 = 4.4%

Hydropower

0.76

0.89

1.26

10%

1.26 × 10% = 12.6%

4.72

Nuclear power

0.98

2.32

—

10%

2.32 × 10% = 23.2%

10.04

Wind power

—

25.64

3.33

10%

3.33 × 10% = 33.3%

1.16

MTOE – million tonnes of oil equivalent Note Energy demand is projected based on 10% GDP growth and the relevant energy consumption growth.

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WEBSITES





Index A accelerated driven system 48 advanced heavy water reactors 48 Agriculture Demand Side Management (AgDSM) 123 air pollution from coal-fired power plants 139 Appellate Tribunal for Electricity (ATE) 129 Arabian Peninsula 5 Asia Least-cost Greenhouse Gas Abatement Strategy 150 Asian Development Bank, study on climate change 149 Association of Southeast Asian Nations (ASEAN) 225 Atomic Power Station, Kaiga 50, Kakrapar 50 Madras 50 Narora 50 B Bab-el-Mandeb Strait 3, 4 Bachat Lamp Yojana 124 Bengal Emta Coal Mines Ltd (BECL) 26 Bhabha Atomic Research Centre (BARC) 49 Bharat Coking Coal Ltd (BCCL) 25 Bharat Heavy Electricals Ltd (BHEL) 27, 247

biodiesel 65, 66 consumption 68 processing 68 production 69, Jatropha curcas 67, Pongamia pinnata 67, Simarouba glauca 67, Azadirachta indica (neem) 67, Madhuca indica 67, transportation 69 use of 69 bioenergy 148 policies 62 potential and performance in India 60 biofuels 62, 263 exports 237 biogas 60 potential 60 biomass 58, 262 agricultural residues 58 animal manure 58 for cooking 59 Black Sea 4 Boiling water reactors 47 Bombay High 30 Bosporus Strait 3, 4 Broach and Tarapur Blocks 40 Bureau of Energy Efficiency (BEE) 118, 123, 250 Bureau of Indian Standards 63 Bureau of Industrial Costs and Prices (BICP) 170 Burma Shell 14

344

Index

C Caltex 14 capacity utilization factor (CUF) 87 Central Coalfields Ltd (CCL) 25 Central Electricity Regulatory Commission (CERC) 86, 189 Central Mine Planning and Design Institute (CMPDI) 23 Chaturvedi Committee 174, 177 cheap energy sources 247 Chernobyl disaster 146 Coal India Ltd 25, 181, 247 city gas distribution (CCD) 35 clean coal technologies 27, 156 coal washeries 27, 156 integrated gasification combined cycle 27, 156 climate change action plan 150 adaptation 150 mitigation 150 National Action Plan on Climate Change 150 coal bed methane (CBM) 20, 28, 156, 255 energy consumption 111 mine methane (CMM) 20 production, five-year plan wise 28, demand 28 sector reforms 182 as pollutant 137, global warming 138 demand–supply 9 geopolitics of 231 import of 27 demand 27 imported 182 e-auction of 187

gross calorific value (GCV) 187 importers 232 exporters 232 export–import of 232 reserves 233 mines 25 underground gasification 28 ONGC 28 pricing 180, 181, 182, for power sector 184 production of, ammonia 254 dimethyl ether 254, hydrogen 254 aviation turbine fuel (ATF) 254 reserve-to-production 21 as source of energy 22 coking 22 non-coking 22 steel industry 22 power sector 22 deposits 22 Gondwana sediments 22 production of 22 Chhattisgarh 23 Jharkhand 23 Madhya Pradesh 33 Andhra Pradesh 23 Maharashtra 23 West Bengal 23 Uttar Pradesh 23 classification of 23, 24 mines 23, source of energy 156 utility in power generation 180 commercial energy demand for 10 consumer of 10 compressed natural gas (CNG) 179

Index Construction Industry Development Council 120 cooling ponds 160 cooling towers 160 crude oil production, 31, 32 Rajasthan Cairn Energy India Pvt. Ltd. 32 consumption 96 imports 208 D Damodar Valley Corporation 26 decentralized distributed generation (DDG) 44 Dicky–Fuller test 105 diesel–ethanol blend 64 distribution companies (discoms) 129 domestic LPG, rationalizing prices 178 domestic oil, exploration 30–35 Dummy-variable approach 94 dung cakes 59 E economic growth rate, India 6 economic liberalization 129 Eigen value 105, 106 electricity generation coal shortages 13 forest clearances 13 growth of 13 Rajiv Gandhi Grameen Vidyutikaran Yojana 12 shortages 11, 13 Tenth Five-year Plan 12 thermal power stations 11 Electricity Laws (Amendment) Act 1991 189

345

electricity pricing 188 electricity saving 120 electricity clean development mechanism 193 cost of debt 192 cost of management of foreign exchange risk 192 depreciation 192 distribution 195 equity norms 191 harnessing generation 193 multi-year tariff 192 operating norms 192 power 193 return on investment 191 tariff on agricultural usages 195 tariff policy 189, 191 tariff structuring 193 transmission pricing 194 electrification of railways 201 emission, greenhouse gases 135 emissions and climate change 149 carbon dioxide 141 from different fuels 140 energy agricultural 20 and environment 135 and environmental impact 135 and growth of civilization 207 appliances 123 awareness 248 calorific values 167 cattle dung 21 classification of 19 coal 20

346

Index

commercial 20 (electricity 20, coal 20, refined petroleum products 20) conservation 129, 132 Conservation Act 2001 118, 127 Conservation Building Code (ECBC) 120 conservative policies 104 consumers, industrial 131, transport 131, building 131, lighting 131 consumption 6, 93, 95, 97, 103, 104, 105, 114, 124 consumption and environmental conservation 135 consumption in India 11 conventional 207 demand and delivery management 249 diplomacy 251, 265 economic growth and transformation 208 education 248 efficiency 99, 100, 113 efficiency measures 249 efficiency, in building 131 efficiency, indicators 116 efficiency, investments 131 elasticity 99, 100, 101 equipment 123 evaluation 117 evolution of 1 firewood 21 from nuclear power plants 146 GDP 103 import dependence 93, 98 imports 9 improvement 119 industrial 20

institutional reforms 248 intensity 114 lignite 20 losses, prevention of 249 management policy 131 natural gas 20, 207 non-commercial 20 non-renewable (fossil fuels 21, coal 21, oil 21, gas 21) 21 oil 20, 208 policies 116 pricing, and energy security 165 primary energy 19 processing of fuels 168 production 93, 95, 97, GDP 93, 105 R&D 247 renewable 21 (wind 21, sun 21, geothermal 21, tide 21, water 21, biomass 21, thermal 21, nuclear 21, hydroelectric 21) reserves 212 residential sector 145 resources 167, 168 resources, quest for 207 scenario, India 5–14 secondary 19 sector, growth 93, 102 security 3, 95, 135 service companies 122 sources 95, 99 sources of, sunshine 1, water 1, human settlement 1, World War II, coal to oil 1, naval ships 1, oil 1, coal 1, importers 2 subsidies 168, 250 supplies 5 supply chain management 251 taxes and duties 167

Index thermal power 20 transmission and distribution losses 250 transport 20, 167 transport sector 125 Twelfth Five-year Plan 9 Energy Security Division 251 energy security 5 assessment of 243 awareness 244 evolution of policies 13 India 11, 15 Integrated Energy Policy 246 nationalization of oil exporters 14 non-commercial forms 243 policy framework 243 resources 19 sustainable 245 environmental taxes 201 environmental degradation 135 error correction method 105 ethanol 62, 63 export parity price (EPP) 171 F fast breeder reactors (FBRs) 48 feed-in-tariffs 203 food security 5 foreign direct investments (FDI) 253 fossil fuel, discoveries 216 Fresnel reflector systems 76 Fuel efficiency 266 fuel supply and transport agreement (PSTA) 254 Fuel Supply and Transport Agreements (FSTA) 184 e-auction 185, fuelwood 59

347

fugitive emissions 145 Fukushima Daichi meltdown 146 G Gas Authority of India Ltd (GAIL) 34, 247, 248 gas hydrates 39, 259 Andaman 39 Damodar Valley Basin 41 Krishna–Godavari 39, 40 Mahanadi basin 39 gas from abroad 34 from Myanmar 224 import of 229 turbine plant 157 gasoline–ethanol blend 65 Geological Survey of India (GSI) 22, 253 geopolitics of gas 219 geothermal 262 energy 147 Global Wind Energy Council 54 globalization of trade 4 green barren lands 67 greenhouse gas emissions 13 gross domestic product (GDP) 7, 103, 165 Gujarat Heavy Chemicals Ltd (GHCL) 29 Gujarat Industries Power Company Ltd (GIPCL) 29 Gujarat Solar Park 88 Gujarat Electricity Regulatory Commission (GERC) 88 Gulf Cooperation Council 212 Gulf crisis 4 Gulf of Aden 5

348

Index

H high-voltage direct current (HVDC) 130, 265 Horn of Africa 5 hydropower 147, 260 Hydro Policy 2008 46 hydrocarbons 140, 255 discoveries 31 transport sector 141, 142 hydropower plants in in Kyrgyzstan 227 in Tajikistan 227 hydropower supply 44, 159 detailed project reports 44 I IEA Bioenergy 58 import parity price (IPP) 171 India Meteorological Department (IMD) 149 India’s National Action Plan on Climate Change (NAPCC) 53 Indian Institute of Foreign Trade (IFT) 127 Indian Institute of Science 149 Indian Institute of Tropical Meteorology 149 Indian Wind Atlas 55 Indian Wind Energy Outlook 2011 54 Indo–US nuclear deal 52 Industrial Revolution 207 industry, use of energy 126, 127 Integrated Energy Policy 16 Integrated Energy Policy Report 125 integrated solar hybrid pilot project 87 Intergovernmental Panel on Climate Change (IP CC) 53, 149

International Renewable Energy Agency (IRENA) 238 International Atomic Energy Agency (IAEA) 52 International Energy Agency (IEA) 2, 3, 4, 58, 113, 208, 249 Iranian Revolution 4 Iran–Pakistan–Indian pipeline 225 J Jammu and Kashmir Minerals Ltd (JKML) 26 Jawaharlal Nehru National Solar Mission 83, 162 K Karakoram–Himalaya pipeline 226 Kern river 217 Kerosene 257 Krishna–Godavari basin 15, 30, 40, 221 Kudankulam Nuclear Power Project 50 Kyoto Protocol 66 L light water reactors (LWRs) 49 lighting 124 lignite 28 Gujarat Mineral Development Corporation 29 Neyveli Lignite Corporation (NLC) 29 reserves 29 source of energy 156 linear concentrator systems 75 liquefied natural gas (LNG) 3, 4, 180 import of 37 terminals 37, 38 liquefied petroleum gas (LPG) 7, 32, 167

Index M Mahanadi Basin 36 Mahanadi Coalfields Ltd (MCL) 25 Talcher and Ib Valley Coalfields 26 Maharashtra Solar Park Metropolitan Region Development Authority (MMRDA) 88 Market-determined pricing mechanism (MDPM) 170 Mediterranean Sea 4 Mediterranean Solar Plan 238 minimum support price 175 mining impacts 138 Ministry of Coal 23, 181 Ministry of New and Renewable Energy (MNRE) 53 Ministry of Petroleum and Natural Gas 174 Ministry of Trade and Industry, Government of Bhutan 45 molecular sieve dehydration technology (MSDH) 63 Municipal Demand Side Management (MDSM) 124 municipal water supply 124 energy efficiency 124 N National Action Plan on Climate Change 119 National Biogas and Manure Management Programme (NBMMP) 61 National Electricity Policy 190 National Energy Commission 248 National Energy Conservation Day 119 National Energy Conservation, awards scheme 119

349

National Geophysical Research Institute (NGRI) 263 National Hydroelectric Power Corporation (NHPC) 198 National Mission for Enhanced Energy Efficiency (NMEEE) 119 National Mission for Enhanced Energy Efficiency 151 National Mission for Green India 151 National Mission for Sustainable Agriculture 152 National Mission for Sustaining the Himalayan Ecosystem 151 National Mission on Strategic Knowledge on Climate Change 152 National Mission on Sustainable Habitat 151 National Policy on Biofuels 69 National Productivity Council 123 National Renewable Energy Laboratory 163 National Sample Survey 6 national security 5 National Solar Mission 151 National Thermal Power Corporation (NTPC) 53, 198, 247 national transmission grid company 189 National Water Mission 151 natural gas 30, 167, 257 supply 34 supply and gas hydrates 156 elasticity of 100 environmental effects 144 performance of 10 production 35, 219 discoveries 36

350

Index

New Exploration Licensing Policy (NELP) 15, 20, 31 non-conventional sources of energy generation 194 non-destructive testing (NDT) 49 North-Eastern Coalfields Ltd (NEC) 25 Northern Coalfields (NCL) 25 Singrauli Coalfields 26, nuclear energy 145 Nuclear Fuel Complex (NFC) 49 nuclear power 259 nuclear power supply 157 Nuclear Suppliers Group (NSG) 52 O OECD 172 ONGC Videsh Ltd (OVL) 34 oil consumption 6 crisis 2 deposits 214 formation 214 from abroad 34 importers 2 pricing of 168 reserves 212 supply 30 unconventional 214 Oil Industry Development Board 179 Oil Pool Account 169 oil production, Eleventh Five-year Plan 9 oil shale resources 218 oil spills due to exploration 143 Macondo disaster 143 Montana blowout 143

Oil and Natural Gas Corporation (ONGC) 28, 247, 248 oilfields, investments in 211, discovery 213 oil-marketing companies (OMCs) 171, 173 Open Access Task Force Committee 265 Open Acreage Licensing (OAL) 35 Organization for Economic Cooperation and Development (OECD) 113 Organization of Petroleum Exporting Countries (OPEC) 2, 210 Orissa State Electricity Board 189 P parabolic dish/engine systems 76 parabolic trough systems 75 Parikh Committee Report 175 particulate matter 141 health hazards 141 passive energy houses (PEH) 122 Petroleum and Natural Gas Regulatory Board (PNGRB) 35 petroleum products administered pricing mechanism (APM) 169, 170 Oil Cost Review Committee 169 Oil India Ltd 169 Oil Prices Committee (OPC) 169 ONGC 169 pricing 15 pricing of 167, 177 Talukdar Committee 169 taxation 15 petroleum, performance of 10 Philips–Perror test (PP test) 105, 106 photovoltaic systems 74

Index photovoltaic, growth of 81 Planning Commission of India 3 Power Finance Corporation (PFC) 247 power generation, optimization of 264 Power Grid Corporation of India Ltd (PGCIL) 129 power sector, 128 achievements 11 Central Electricity Authority (CEA) 43 GDP 42 generation capacity 42 hydropower supply 44 installed 42 Tenth Five-year Plan 42 power tower systems 77, 78 power distribution 198 generation 199 transmission 199 pressurized heavy water reactions (PHWRs) 47 price band mechanism 171 Prime Minister’s Council on Climate Change 150 procurement of power 193 pricing 196 transmission and distribution 197, 199, tariffs 200 public distribution system 257 public transport long-term measures 267 medium-term measures 266 R radioactive waste 146 Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) 43, 177

351

Rajasthan Atomic Power Station 48 Rajasthan Solar Park 87, Rajasthan Rajya Vidyut Prasaran Nigam Ltd (RVPN) 87 Rajasthan State Mines and Minerals Ltd (RSMML) 29 Rajiv Gandhi Grameen LPG Vitrak Yojana (RGGLVY) 259 Rangarajan Committee 15, 174 Regulatory Commissions Act 128 Reliance Industries Ltd 35, 212 renewable energy 53, 161 biofuels 161 biomass gasification 161 certificates 203 pricing of 204 programme, progress of 9 resources, 235 solar power 162 sources, wind energy 9 technologies (RETs) 53 wind turbines 162 right of way (RoW) 130 rural electricity distribution (REDB) 44 Rural Electrification Corporation (REC) 44 rural electrification, progress of 176 S sale and purchase agreement 37 Sea of Marmara 4 shale gas 39 Cambay Basin 40 Mehsana–Ahmedabad 40 shale gas energy diplomacy 226 revolution 228 Shanghai Cooperation Organization (SCO) 225

352

Index

Singareni Collieries Company Ltd (SCCL) 25, 181 small to medium-sized enterprises (SMEs) 118 Smart Grid Pilot Project 130 smart grid technology 130 Smart grid, management of power 252 social security 5 solar Central Electricity Regulatory Commission 86 chimney 79 cookers, growth of 84 Electric Light Company (SELCO) 248 electrification 82 energy 71, 148, 261 home-lighting systems 84 Jawaharlal Nehru National Solar Mission 261 lighting systems 82 mission, targets 86 National Thermal Power Corporation 86 photovoltaic cells 73, 162 photovoltaic pumps, in India 82 power thermal steam plants 162 space heating 80 street lighting 85 systems 73 thermal 73 thermal energy 74 thermal power generation, in India 81 use of 71 NTPC’s Vidyut Vyapar Nigam Ltd (NVVN) 86 water heating 79

Somalia 4 South Asian Association for Regional Cooperation (SAARC) 130, 225 South-Eastern Coalfields (NCL) 25 space cooling 80 Standards and Labelling (S&L) Programme 119, 123 state electricity board (SEB) 188, 189 state electricity regulatory commissions (SERCs) 189 Steam-Assisted Gravity Drainage (SAGD) 217 Steel Authority of India Ltd (SAIL) 26 steel industry, blast furnace-based 180 Suez Canal 3 sustainable economic growth 103, 104 T Tarapur Atomic Power Station (TAPS) 47 taxes across fuels 200 The Bihar State Mineral Development Corporation Ltd (BSMDC) 26 The Energy and Resources Institute (TERI) 58 thermal energy 120 thermal gasifiers 58 thermal storage 77 thorium resources Bhabha Atomic Research Centre 52 Indira Gandhi Centre for Atomic Research (IGCAR) 52 trade parity pricing (TPP) 171 transmission and distribution (T&D) 129 transportation sector 163 Turkmenistan–Afghanistan– Pakistan–India pipeline 226

Index

353

U ultra-high voltage alternating current (UHVAC) 130, 265 Un ite d Nat ion s Fra mework Convention on Climate change (UNFCCC) 149 Uranium Corporation of India Ltd (UCIL) 50 uranium mill tailings 146 uranium reserves Chitral 51 Dishnur 51 Kuppunur 51 Kyelleng–Pyndengsohiong 51 Lambapur–Peddagattu 51 Rohili–Ghateswar 51 Wahkyn 51 urban waste 148 US Energy Information Administration (EIA) 113, 215

Western Coalfields Ltd (WCL) 25 Wide Area Measurement System (WAMS) 130 wind 261 energy 54, 149 global manufacturing hub 261 grid transmission planning 261 power load factor 261 wind energy generation 54 installed capacity 54 wind power development, in India 57 World Energy Council (WEC) 114, 155, 250 World Health Organization (WHO) 7 World Institute of Sustainable Energy (WISE) 54, 55

W warming of oceans 136

Z zero energy building 122

Y Yemen 4

About the Author Dr Bala Bhaskar Boddu possesses more than 25 years of versatile experience as an engineer, an economist, and a diplomat. He is a graduate in Civil Engineering and a postgraduate in Economics. He holds a doctorate in Economics and is also a Fellow of the Institute of Engineers, India. Dr Bhaskar worked as Civil Engineer for the Government of Andhra Pradesh for nearly seven years. During this period, he was involved in planning and implementation of varied developmental and anti-poverty programmes, including bio-energy projects. After joining the Indian Foreign Service in 1993, he served in the Indian Embassy, Cairo, and Consulate General of India, Jeddah. During 2000–03, Dr Bhaskar served as Representative of India to Palestine. His postings in the Middle East have further reinforced his interest in energy and related issues. Dr Bhaskar also served in various capacities in the Ministry of External Affairs between 2004 and 2010. Presently, he is serving as Minister in the Embassy of India, Washington, DC. Dr Bhaskar has delivered guest lectures in several Indian and foreign universities on the Middle East and Indian economy, among other topics.

Energy Security and Economic Development in India A Holistic Approach Bala Bhaskar Energy is fundamental to the economic development of a society. Ensuring energy security is critical to the security, sovereignty, and well-being of any country. However, there is no consensus on the definition of energy security. Energy Security and Economic Development in India attempts to construct an appropriate definition for the concept of energy security. The evolution of energy security is traced at both the global level and in the Indian context. This book elaborates on the concept of energy security, highlights its linkages, enumerates India’s indigenous energy resources, examines the status of energy security in the country, and makes policy suggestions to ensure energy security in the country.

Energy Security and Economic Development in India A Holistic Approach Bala Bhaskar

Key Features • Extensive coverage of the various energy resources of India. • Unique focus on economic linkage between energy and economic growth. • Detailed description of the trends in India’s energy consumption, production, imports, and exports. • Discussion on energy efficiency and evaluation of energy-efficiency policies in vogue • Provision of policy suggestions to improve energy efficiency and conservation. • Analyses of the environmental impact of different sources of energy and longlasting, adverse implications of anthropogenic activities. • Succinct highlight on the importance of water in strategies to attain energy security. • Systematic analyses of pricing dynamics of various energy sources. • Elucidates the geopolitical dynamics and underpins the role of energy diplomacy in achieving energy security.

The Energy and Resources Institute

The Energy and Resources Institute