India’s Energy Policy – Truths and Myths


a report by Varun Rai


Assistant Professor of Public Affairs, and Faculty Affiliate of the Center for International Energy and Environmental Policy, University of Texas at Austin


Since the industrial revolution, economic growth and energy demand have moved hand in hand. That nexus has never been more noticeable in modern India. India’s rapid economic growth over the last decade has brought energy matters to the forefront of challenges facing the country. As India looks to continue its growth over the next couple of decades and perhaps longer, its energy challenges appear to multiply. They do in fact pose a real threat to India’s ability to fuel its growth.


Shaky Dependence on Fossil Fuels The bulwark of India’s energy supply – fossil fuels (coal, oil and natural gas) – is becoming increasingly unreliable. India imports about 75% of its crude oil requirements.1


Notwithstanding the country’s aggressive


push to accelerate domestic exploration and production, its import dependency is set to grow. Despite high dormant demand for natural gas, lack of a reliable supply has limited its use.2


Coal, which supplies


over half of India’s commercial energy needs, is headed for troubled waters as well. Contrary to the common perception that India has ‘unlimited’ coal reserves, multiple estimates suggest that economically recoverable coal reserves will only serve India for another 30–50 years at best.3


The country is


In situ gasification and coal bed methane can extend the extractable primary energy from India’s coal resource.4 actively looking to deploy gasification technologies.


The coal problem in India is, however, more serious that just recovery. India’s highly inefficient coal industry, combined with rich coal reserves below forests and tribal lands, make increasing the production to meet required rates nearly impossible. In the face of strong demand, India is importing coal from South Africa, Indonesia and even Australia. It is likely that India will import as much as 50% of its coal in 2030.2


this on the international coal markets is another fascinating story. Overall, a future based on fossil fuels inevitably means huge import-dependency, which to India implies a serious threat to its energy security.


Energy Sector Reforms and the Search for Alternatives As extrapolating its energy supply trajectory of the past appears intractable, India has been forced to pay attention to efficiency, demand management, nuclear power, renewable sources of energy and sectoral reforms. Through the Bureau of Energy Efficiency, India has developed a fairly successful platform for promoting energy efficiency for appliances and the industrial and building sectors. The government runs an aggressive petroleum conservation campaign through the mass media. It supports one of the most generous feed-in-tariff rates for renewable sources of energy including wind, biomass and solar. For instance, estimates suggest that as part of the National Solar Mission (NSM), which calls for 20GW of solar power by 2022, the government has committed about US$8 billion during just the first phase (1100MW solar energy by 2013).5


Sectoral reforms are primarily geared towards improving the regulation and efficiency of energy production and supply. They also focus on


© TOUCH BRIEFINGS 2010


A further hindrance to reforms comes from the fact that important parts of the central government’s policies are implemented through state-level agencies, which are often heavily influenced by regional politics. A noticeable example is electricity. Thus, despite the groundbreaking Electricity Act of 2003, which mandates nationwide reform and restructuring of the electricity industry, only a few states have made real progress towards that goal.6


In turn, the central government has found that


the most effective way of reforming the energy sectors and state-owned companies is by exposing them to private competition.1


Indeed, the share


of private companies in India’s energy industry has sharply risen in the past decade. For instance, private companies now operate about 40% of petroleum exploration leases compared with virtually nil in 2000.


The impact of


Private companies are also leading the growth of energy services and renewable energy in India. This has had a two-fold impact. First, the government now has the performance benchmarks available from the market to objectively evaluate the efficiency of state-owned companies. These benchmarks have increased the pressure on these companies to improve from within. Second, the positive results of the initial reforms and a strong push from private companies have moved reforms forward, thereby launching India into somewhat of an upward spiral of successful reforms.


Varun Rai is an Assistant Professor at the LBJ School of Public Affairs, University of Texas at Austin, and a Research Fellow at the University’s Center for International Energy and Environmental Policy. His principal research interests are in technological change, innovation and diffusion; economics of climate change/integrated assessment models; and energy and development. Dr Rai received his PhD and MS in mechanical engineering from Stanford with


specialisation in energy systems and technologies. He holds a bachelor's degree in mechanical engineering from the Indian Institute of Technology (IIT) Kharagpur.


E: varun.rai@mail.utexas.edu


increasing competition in the supply markets through the participation of private firms.


Institutional and Political Inertia Hold Reforms Back Owing to the institutional and political baggage of the past, policy implementation has been choppy and the desired impact limited. Historically, India has organised most of its energy industry through state-owned companies. In that system, the boundaries between policy-making, regulation and operations are vague. Virtually unregulated and devoid of any motivation to produce profits, the state-owned energy companies have become very inefficient. Nevertheless, they still represent large parts of India’s energy system. These companies have used their information advantage and political clout to keep reforms at bay. The oil and gas and the coal sectors fall into this category.


13


Asian Focus


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