The Modi government has made a promising start in addressing key energy concerns like the shortage of coal, fuel subsidies, and climate change. It now needs to address the critical and mounting losses of power distribution companies. It further needs to fine tune its existing policies on oil security, renewable energy, and nuclear power.
When the Modi government took office in May 2014, India faced a severe coal shortage. 100 thermal power plants had coal stock for an average of 14 days while 22 plants operated with less than 7 days’ stock.[1] This has since increased to average coal stocks of 24 days,[2] and the government’s other major achievement in the coal sector has been the coal block auction of 2015 to ensure a transparent allocation of a contentious natural resource.[3]
However, the heavy losses of power distribution companies continue: 22.7%[4] of the total electricity generated in India is lost on account of technical factors or theft while another 22%[5] is subsidised for farmers. This restricts the ability of the distribution companies to buy power from power generation firms, pushing the generators into distress as well. The large borrowings of the power sector, in turn, create a problem for the banking industry.
It is a no-win situation currently, and doing away with power subsidies for farmers is reckoned to be politically unwise. At best, the government can cut down technical losses and theft and limit agricultural subsidies, as it has done with cooking gas[6], to small and marginal farmers..
The government has already limited cooking gas subsidies. Subsidies on petroleum fuels like cooking gas, kerosene, diesel, and petrol have been a big drain on the national exchequer in the past, with annual subsidies mounting to $25 billion.[7] Fortunately, as petroleum prices have dropped over 60% since 2014[8], it has helped substantially alleviate this burden and the government has been able to fully deregulate the price of diesel and petrol. Whether the government can continue with its deregulation policy if oil prices rise again remains to be seen.
The low price of petroleum has created an opportunity for India to acquire oil fields at low prices across the world, as a hedge against future price. Public sector oil companies—the Oil and National Gas Commission (ONGC), Indian Oil, Oil India, and Bharat Petroleum—-have entered into a series of agreements to acquire a stake in Russian oil fields and their share of the production will average over 11 million tons/annum.[9, 10],
They should be encouraged to do more such deals with one caveat that future deals in this space should be wholly company to company deals, driven only by commercial considerations, and not government to government. Inter-governmental petroleum deals are usually with regimes that actively interfere in everyday management and alter the rules to the investors’ detriment when oil prices go up. Disputes are usually left to local courts or diplomatic channels, leaving the Indian investor with no viable recourse, as is the case with India’s investment in Venezuela, where money is stuck due to internal economic unrest. In a purely commercial deal between two companies, dispute resolution is usually through international arbitration, which gives some protection to investors.
Renewable energy is the third leg of the energy triad the government needs to work on. It has set a highly ambitious target capacity of 175,000 MW of renewable power by 2022.[11], the bulk of which—-100,000 MW—is to come from solar power. Now, 1 MW of solar power fully occupies 2 ha land[12], so acquiring land for large solar projects will be a challenge. In contrast, windmills do not take up as much land, and all their components are made locally. India needs reorient its goals from solar energy to wind as it lacks a strong solar power manufacturing base and has recently lost a case at the World Trade Organization (WTO) for the granting of preferential treatment to domestic manufacturers for the National Solar Mission. The large scale adoption of solar power will only end up creating jobs in China!
The falling cost of renewable energy should also be tapped by the government, which also needs to revisit its nuclear energy plans. Projected as a carbon-free source of power, nuclear power is a key point in India’s engagement with the United States, but this now needs to change. Not only is it more expensive to generate than renewable energy, but western firms such as Westinghouse and Areva are trying to sell technology that costs up to 3 times[13] the price of indigenously-designed nuclear reactors[14] of the same capacity. India needs to go in for locally built nuclear plants if at all.
India is in a sweet spot in terms of energy security – its energy demand growth is going to come at a time when global energy prices are at multi-year lows. At the same time, renewable energy technologies have also developed sufficiently that they can be used at a large scale, so the Indian economy can grow without polluting the environment the way the U.S. and China have in their growth phase. This could be a lasting legacy of the Modi Prime Ministership globally.
Amit Bhandari is Fellow, Energy & Environment Studies, Gateway House.
Kunal Kulkarni is a Senior Researcher at Gateway House.
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References
[1]“Coal Stocks Position at Various Thermal Power Stations in the Country”, Central Electricity Authority, May 2014, <http://www.cea.nic.in/reports/daily/coal/2014/May/01.pdf>, Accessed 10 May 2016
[2]“Coal Stocks Position at Various Thermal Power Stations in the Country”, Central Electricity Authority, May 2016, <http://www.cea.nic.in/reports/daily/coal/2016/May/01.pdf>, Accessed 10 May 2016
[3]Press Information Bureau, Government of India, “Year End Review – Coal Mines (Special Provisions) Bill 2015 Passed; Laid Down Robust & Transparent System for Coal Mines Auctioning”, 16 December 2015, <http://pib.nic.in/newsite/PrintRelease.aspx?relid=133313>, Accessed 10 May 2016
[4]“The Performance of State Power Utilities for the Years 2011-12 to 2013-14″, Power Finance Corporation Ltd., July 2015, pp. ii, <http://www.pfcindia.com/writereaddata/userfiles/file/Operations/state_performance/Report on the Performance of State Power Utilities 2011-12 to 2013-14.pdf>, Accessed 10 May 2016
[5]“The Performance of State Power Utilities for the Years 2011-12 to 2013-14″, Power Finance Corporation Ltd., July 2015, pp. x, http://www.pfcindia.com/writereaddata/userfiles/file/Operations/state_performance/Report on the Performance of State Power Utilities 2011-12 to 2013-14.pdf, Accessed 10 May 2016
[6] Press Information Bureau, Government of India,“80 lakh LPG consumers voluntarily surrender subsidy on LPG”, 9 March 2015, <http://pib.nic.in/newsite/PrintRelease.aspx?relid=137551>, Accessed 10 May 2016
[7]Press Information Bureau, Government of India, “Subsidy on Petroleum Products”, 25 April 2016, http://pib.nic.in/newsite/PrintRelease.aspx?relid=141145, Accessed 10 May 2016
[8]Petroleum Planning & Analysis Cell, Ministry of Petroleum & Natural Gas, Government of India, Ready Reckoner, March 2016, pp. 17, <http://ppac.org.in/WriteReadData/Reports/201604191010304216675SnapshotofIndia’sOil&Gasdata-March2016.pdf>, Accessed 10 May 2016
[9]Press Release, Rosneft, ‘Rosneft to Form a Unique International Consortium Based on the Vankor Project’, 16 March 2016, <http://www.rosneft.com/news/pressrelease/160320162.html>, Accessed 10 May 2016,
[10]Press Release, Rosneft, ‘Rosneft Attracts a Consortium of Strategic Investors to Participate in the Taas-Yuryakh Neftegasodobycha Project’, 16 March 2016, <http://www.rosneft.com/news/pressrelease/16032016.html>, Accessed 10 May 2016
[11]Press Information Bureau, Government of India, “Solar Power Target of CPSUs”, 9 May 2016, <http://pib.nic.in/newsite/PrintRelease.aspx?relid=145097>, Accessed 10 May 2016.
[12]Rajya Sabha, Government of India, ‘Cost of Solar Power Generation’, 14 March 2016, <http://164.100.47.234/question/annex/238/Au1819.pdf>, Accessed 10 May 2016.
[13]Taxpayer.net, “DOE Loan Guarantee Program: Vogtle Reactors 3&4”, 19 February 2015, http://www.taxpayer.net/library/article/doe-loan-guarantee-program-vogtle-reactors-34, Accessed 10 May 2016.
[14]Ministry of Atomic Energy, Government of India, “Nuclear Power Program”, 17 December, 2014, <http://164.100.47.192/Loksabha/Questions/QResult15.aspx?qref=10919&lsno=16>, Accessed 10 May 2016.