With the upcoming UN Climate Summit in late September 2014 and the UN Climate Change Conference in Paris in 2015 and Prime Minister Modi's election placing political uncertainty in the rearview, it's time for India, energy-hungry and energy-starved, to cement a long-term energy agenda.
As the world’s tenth
largest economy, India is, and will continue to be, central to the global
energy story. While fiscal mismanagement and paralyzed politics have produced a cooling economy following consistent 8% annual GDP growth for two decades, India is on pace
to become the world’s third largest economy by 2030, requiring significant
energy demands and placing unparalleled strains on global supplies.
China and India alone will account for 60% of growth in petroleum demand in the
coming two decades. The International Energy Agency projects that India’s
petroleum demand will balloon to over 8 million barrels per day, nearly
all of which will be imported. Further, India’s growth remains highly inefficient
and carbon intensive with each $1,000 of GDP added requiring 3.3 barrels
of oil, compared to just 1.1 barrels among OECD nations.
India hosts a unique set of
energy characteristics and challenges that cannot be addressed without considering its political
backdrop. Unlike China, which practices an aggressive, state-led “me first”
energy policy fueled by tens of billions of dollars in fixed investment,
India is far more hamstrung, juggling the largest free market democracy in the
world and a long history of fractious politics, endemic corruption, and
stifling bureaucracy. China’s hallmark infrastructure investment is wholly missing
in India, where 45% of the population is still off the grid, relying on
firewood and biomass.
swiftly become a leader in the world’s solar and wind markets while India lags far
behind and will progress far more slowly. While China’s central government
unilaterally displaces entire villages to build a hydro plant or a wind farm,
India cannot due to significant land acquisition challenges. And, with a
population density of roughly 350 people per square km, excavating and building
a power plant over five hectares requires displacing and re-locating 20,000
people, not to mention the tangle of conflicting utility, state, land, and coal
interests. India’s policymakers will not have the luxury of sweeping mandates and any
energy policy the country adopts will be fraught with political quicksand. With untenable fiscal debt and unfavorable foreign investment,
India will need to harness new methods of financing, innovative public-private
partnerships, and joint venture opportunities.
India's “superpower” growth story has been widely popularized. But, its energy profile
tells a different story— one of a vast, energy-poor nation. Travel to villages and major cities in India today and you will encounter timed
blackouts from “load-shedding” and bazaar storefronts lined with gas-spewing
generators due to lack of grid access. Let's not forget that in July 2012 a blackout struck 19 states across India's heartland affecting 600 million people.
Despite these weaknesses, a dramatic energy growth story awaits. In terms of oil equivalent per year,
India consumes 500 kg per capita, less than one-third of the global average of
1,800, one half of China’s 1,090, and just 6% of the U.S.’s 7,835 kg per
capita. With a population
headed to 1.5 billion and a middle class swelling to over 500 million
by 2025, India is entering its most energy intensive growth phase with
energy demand slated to grow by over 400% by 2035. A comprehensive Energy 2035 agenda will need to decarbonize and shift away from fossil fuels, clean up coal
plants, implement broad demand-side efficiency and conservation measures, significantly ramp up solar and wind capacity, further open the door for private capital, modernize the grid, and streamline energy agencies, while balancing energy security, below-poverty-line, and environmental interests.
energy mix in 2012 included 44% coal, 22% oil, 22% biomass and waste, 7% natural gas, 4% renewables, and
1% nuclear. In addition to remaining overwhelmingly fossil fuel-driven, India
imports 80% of its crude oil requirement, dampening energy security for the
foreseeable future. India will need a makeover of its fossil fuel
policy, beginning with subsidies. India doled out $39 billion in fossil
fuel subsidies in 2011, draining the fiscal budget, skewing the market,
bankrupting private suppliers, lining the pockets of bureaucrats, and propping
inefficient companies and practices. India would benefit from a gradual and total
phase-out of subsidies to oil, diesel, kerosene, and liquefied natural gas
(LNG) by 2020. As one of the world’s top five energy subsidizers, it's time for India to rationalize fuel prices
and encourage market-based efficiencies rather than directly curbing
India would benefit from boosting use of off-the-shelf technology to improve its dismal 28% recovery
rate of oil and gas to above 40%. With coal accounting for over half of India’s
energy mix, the dirtiest of fuels will likely continue to retain a large
portion of India’s energy portfolio for the coming decades. Notably, India’s
poor quality, high ash content coal is difficult to sustainably extract and
export. Despite boasting some of the largest indigenous coal reserves in the
world, the country still suffers from domestic shortages, which have hampered
electricity generation and forced up coal imports. India should aggressively reduce its reliance on coal to 35% to 40% by
2035, while also investing heavily to improve coal conversion (currently just
30%), as well as in clean coal technologies and expanded transport
infrastructure to consumption centers. Legislation enforcing tighter coal plant standards and broader
investment in transport infrastructure, primarily in freight rail, which is
more efficient that the country’s crumbling trucking and road network, will aid the transition.
To bolster the rural
electrification initiative of 2003 to ensure electricity to every citizen by
2012 (years behind schedule), India should align all of its regulatory and
industry agencies as well as state governments under one comprehensive, unified
energy policy. To boost grid infrastructure buildup and access, India should boost private capital to power generation, transmission, and distribution
companies. Unhealthy balance sheets among utilities have produced poor
quality, unreliable supply and, unless India invests significantly to scale up
installed capacity by more than five-fold, the country will face dramatic regional
shortfalls. Part of the solution will be a smarter grid.
Also key to reshaping
the energy basket is natural gas. India would benefit from ramping up gas in the primary
energy mix to 20% by 2035 as a bridge to an even longer-term renewables future.
In addition to tapping into and developing domestic supplies, India will need
to build cross-border and North-South pipelines, as well as build up to ten
LNG terminals in the East and West. While a relatively small gas
player today, India has the potential to become one of the world's leaders by
forging partnerships and bringing in international expertise in recovery and
design. Shale gas also offers significant potential, but will likely be stunted by
licensing, land, water, and environmental complications.
nuclear energy should fill out India’s mix, with a stretch target of 20% share
by 2035. While nuclear currently tallies a small sliver of India’s energy
production, the country has five reactors under construction with plans to
build 18 by 2025 and eventually generate 25% of its electricity from nuclear
reactors by 2050. These lofty goals will likely be severely delayed due to up-front capital requirements, a complex and sluggish land acquisition process, waste
storage issues, and liability disputes. Moreover, resistance persists
post-Fukushima while India implements a complete review of safety conditions
across the sector. Notably, India is not a signatory of the non-proliferation
treaty (NPT). Going forward, while India hosts relatively scarce uranium
supplies, the country is rich in thorium, a juicy R&D investment target.
The "X factor" will be India’s ability to
successfully develop solar and wind potential. With 3 million square km of
tropical and subtropical land and 250 to 300 sunny days per year, India has one
of the highest solar potentials in the world. The country is ambitiously
planning to hit solar capacity of 22 GW by 2022 up from 2.6 GW
today. The goal faces steep challenges– capital costs, land acquisition,
and effective transmission. Moreover, it will require dramatic investment,
which India could partly fund through savings from the phase-out of fossil
fuel subsidies. The country would profit from integrating technical know-how and proven
policies, including feed-in tariffs, from other successful solar programs. With
over 20 GW of installed capacity, India is the world’s fifth largest
wind market. In comparison, China is the global leader with over 50 GW. India should look to add 40 GW to 50 GW more wind capacity by 2035, but will share
similar scale-up challenges with solar, in addition to noise pollution and not-in-my-backyard
(NIMBY) opposition. Overall, investment in solar and wind can also prove
economically beneficial in developing a new manufacturing sector to employ
millions of new workforce entrants in the coming decades.
The “fifth fuel” is demand-side
efficiency and conservation. While lacking the political ribbon-cutting
benefits of gas and renewables projects, in terms of abatement strategies, it remains the lowest hanging fruit, requiring the least up-front cost. Wider-reaching education efforts around environmental impact (e.g.,
individual carbon footprint) and new efficient technologies would help. Most importantly,
the government could substantially scale up investment in efficient public
transport and legislate more stringent car and truck tailpipe emissions
standards every five years. Additionally, India could encourage broad adoption
of LED bulbs, energy efficient appliances, and greener building standards.
With a slow-moving, underfunded, and fragmented energy supply and
demand structure, Modi will be challenged to replicate his solar and price-setting successes in Gujarat on a national scale. Though, with a clear political mandate in place, India is ripe for a shake-up and hungry for a more ambitious, transparent, decentralized,
and innovation/partnership-based Energy 2035 agenda.