Policies and measures for economic efficiency , energy security and environment protection in India

Introduction India is pursuesing all fuel options and forms of energy as well as new and emerging technologies to meet economic efficiency, environment protection and energy security (3-E) goals. India will need to take a lead in seeking clean coal technologies to tap its vast coal reserves using conventional technologies. While medium to long-term challenges of ensuring competitive energy supplies from other nations are formidable, immediate problem of power and coal shortages also requires policy actions. This study presents strategic needs of India’s different energy sectors and suggests various measures to meet 3-E goals.


Introduction
India is pursuesing all fuel options and forms of energy as well as new and emerging technologies to meet economic efficiency, environment protection and energy security (3-E) goals.India will need to take a lead in seeking clean coal technologies to tap its vast coal reserves using conventional technologies 1 .While medium to long-term challenges of ensuring competitive energy supplies from other nations are formidable, immediate problem of power and coal shortages also requires policy actions.This study presents strategic needs of India's different energy sectors and suggests various measures to meet 3-E goals.

Energy Scenario of India: Strategic Needs Coal Sector
Coal accounts for over 50% of India's commercial energy consumption and majority of coal production (78%) is dedicated to power generation (Table 1).Since prices were de-controlled, the sector has become profitable primarily as a result of price increases and rising share of open cast production.At present, India needs to facilitate coal imports and create required infrastructure.At the same time, domestic coal production should be encouraged by allotting coal blocks to central and state public sector units (PSUs) and captive mines to notified end users.Coal Mines (Nationalization) Act, 1973 should be amended to facilitate private participation in coal mining for potential entrepreneurships.

Power Sector
Power sector reforms must focus on technical and commercial losses of state power utilities 2 .Only financially healthy state power utilities can sustain as state PSUs and provide conducive environment to attract private investment in the power sector at internationally competitive tariffs.To control Aggregate Technical and Commercial (AT&C) losses, existing Accelerated Power Development and Reform Programme (APDRP) be restructured to ensure energy flow auditing at distribution transformer level, Geographical Information System (GIS) of power distribution network and consumers be mapped, and feeders for agricultural pumps be separated.

Hydro and Nuclear Sector
Exploitation of India's full hydro potential (150,000 MW) would result in meagre (5-6%) contribution to national energy capacity.Similarly, even if a 20-fold increase takes place in nuclear power capacity by 2031-32, contribution of nuclear energy to national energy would be meager (5-6%).India's per capita water storage is the lowest among all its comparators 3 .Creating such storages is critical to India's water security, flood control and drought control.India has to realize nuclear development process with the help of its vast thorium resource to become truly energy independent beyond 2050.

Renewables
Even with a concerted push of 20-fold increase in capacity, renewables can account for around 5-7% of total national energy capacity by 2031-32 (Table 2).Subsidy 4 for renewables may be justified because renewable energy sources are environmentally benign, locally available making it possible to supply energy earlier than a centralized system and provide employment and livelihood to the poor.Power regulators must create alternative incentive structures to encourage utilities to integrate wind, small hydro, cogeneration etc. into their systems.A subsidy could also be given in the form of a Tradable Tax Rebate Certificates (TTRC) based on energy generated.The rebate claim becomes payable depending upon the amount of electricity/energy actually certified as having been supplied.
An annual renewable energy report covering actual energy supplied from different renewable options, actual costs, operating and maintenance problems etc. should be published.It should also report on details of actual performance of different renewable technologies at the state and national level, social benefits, employment created, women participation and empowerment in development of fuelwood plantations, biogas plants, Indian Renewable Energy Development Agency Ltd (IREDA) should be converted into a national refinancing institution on the lines of NABARD/National Housing Bank (NHB) for the renewable energy sector.IREDA's own equity base can be expanded by the financial institutions of the country instead of continuing the current system of GOI support.

Strategies to Meet 3 E's Reduce Energy Cost
In terms of purchasing power parity, power tariffs in India for industry, commerce and large households are among the highest globally.Suggested measures to reduce cost of power 5 are as follows: a) Government should ensure that all generation and transmission projects are competitively built on the basis of tariff based bidding under a prescribed price cap; b) Government should enhance capital markets for 20 years to develop market based instruments for power projects; c) Standardize unit size and invite global tenders for 20-30 units to get substantial bulk discount; and d) Distribution should be bid out based on distribution margin or paid for by a regulated distribution charge determined on a cost plus basis including a profit mark up.
In a competitive set up, prices of different fuels at different places do not differ by more than the cost of transporting fuels.All commercial primary energy sources must be priced at trade parity prices at the point of sale.Central and state taxes on commercial energy supplies need to be rationalized to yield optimal fuel choices and investment decisions.Relative prices of fuels can be distorted if taxes and subsidies are not equivalent (in term of effective calorie) across fuels

Energy Efficiency and Demand Side Management
Lowering energy intensity of GDP growth through higher energy efficiency is a key to meet energy challenge and ensure energy security.India's energy intensity of growth has been falling about half than that of early 70s.Currently, India's energy intensity of growth (0.19 kg of oil equivalent per dollar of GDP expressed in purchasing power parity terms) is better than that of China (0.21 kg), USA (0.22 kg) and a world average (0.2 kg), besides being equal to OECD (0.19 kg), and worse than Brazil (0.14 kg) and Japan (0.15).Energy intensity in India can be brought down significantly (25%) with current commercially available technologies 6 .In many cases, purchase decision is based on initial cost, but the operating cost predominates as compared to the initial capital cost (Table 3).Lowering energy intensity through higher efficiency is like creating a virtual source of untapped domestic energy (Table 4).
Efficiency can be increased in energy extraction, conversion, transportation, as well as in consumption.Efficiency in energy use can make a substantial impact in mining, electricity generation, transmission and distribution, pumping water, industrial production processes, haulage, mass transport, building design, construction, heating ventilation & air conditioning, lighting and household appliances.Following policies may be implemented by industry associations: i) Petroleum Conservation Research Association (PCRA) should be merged with Bureau of Energy Efficiency (BEE) under Energy Conservation Act; ii) Increase coal use efficiency (to 39%) in power generation from current average (30.5%) for all new plants; iii) Require a least cost planning approach so that regulators permit same return on a watt saved as on the investment needed to supply an additional watt; iv) Promote urban mass transport, freight movement by railways, and energy

Augmenting Resources
India's energy resources can be augmented till 2031-32 by exploration of coal, oil and gas, or by recovering a higher percentage of in-place reserves 6 .Developing thorium cycle for nuclear power and exploiting nonconventional energy, especially solar and biomass, offer India's energy self sufficiency beyond 2050.In domestic production (growth rate 5%), currently extractable coal resources will be exhausted in next 40 years.Covering all coal bearing areas with comprehensive regional and detailed drilling could increase significantly the estimated life of India's coal reserves.Extractable coal resources can be augmented through in-situ coal gasification to extract coal deposits and coal bed methane at greater depth.Enhanced oil recovery and incremental oil recovery technologies can improve proportion of inplace reserves that can be economically recovered from abandoned/depleted fields.Isolated deposits of all hydrocarbons including coal may be tapped economically through sub lease to the private sector.

Energy Security
Reducing energy requirement and increasing energy use efficiency are the most important measures to increase energy security 7 .The threat to energy security  arises not just from the uncertainty of availability and price of imported energy, but also from the possible disruption or shortfalls in domestic production.There is need to provide security against supply risk from domestic sources (strikes in big establishments such as Coal India Ltd or Railways) and technical risks (generators fail, transmission lines trip or oil pipeline may spring a leak).Risks can be reduced by reducing the requirement of energy, increasing efficiency in production and use of energy, substituting imported fuels by domestic fuels, diversifying fuel choices (gas, ethanol, biodiesel, tar sands etc.), expanding domestic energy resource base and maintaining strategic reserves.

Household Energy Security Electricity and Clean Fuels for All
Considerable effort spent on gathering biomass and cowdung and preparing the same for use is having far higher price than the cost of such energy.These fuels create smoke and indoor air pollution, thereby causing adverse impact on the health of people, particularly women and children.Easy availability of a certain amount of clean energy, required to maintain life, should be considered as a basic necessity.Energy security at the individual level means to ensure supply of such lifeline energy in need.India cannot be energy secure if her people remain without secure supply of energy at affordable cost.
Even if one assumes that some 30% of India's households are unable to pay for a lifeline electricity consumption of 30 units /month and a loss level of about 40% in delivering these 30 units, total need for free electricity is about 7% of current generation.At zero cost to consumer, this translates into a subsidy burden of about Rs 9,500 crores a year assuming infrastructure is built under Rajiv Gandhi Grameena Vidyut Yojana (RGGVY).This burden would reduce over time as 8% GDP growth is expected to reduce poverty at a rate that exceeds population growth.Similarly, if one assumes that the same 30% of Indian households cannot pay for a lifeline consumption of 8 cylinders of gas per annum while another 20% can only pay for 25% of the cost of supply of such lifeline consumption of gas; the subsidy burden amounts to about Rs 34,000 crores annually at Rs.450/cylinder.Again, this subsidy burden would reduce over time with economic growth and productivity of rural India apart from improvements in health and environment.Currently, over 60% of the estimated subsidy burden is being funded, although the benefits do not reach the intended beneficiaries due to poor distribution.The real issue is to direct subsidy programme well and ensure that those falling outside the subsidy net pay the full cost of supply.A well directed subsidy regime might also be supplemented with entitlements through smart debit cards.
In addition to the subsidy, other actions needed are as follows: i) Finance a large scale socio-economic experiment to operate community sized biogas plants as a commercial enterprise either by a community cooperative or by a commercial entrepreneur, to meet the need for clean cooking energy of a sizable segment of the rural population; ii) Improve efficiency of domestic chullahs & lanterns from the prevailing 10-12% to 20-25%; iii) Develop village woodlots within 1 km to reduce drudgery of gathering fuel, form women's co-operatives for developing and managing fuelwood or oilseed plantations to develop sustainable energy supply with the same efforts that they put in searching and gathering fuelwood today and provide finance through self-help groups to transform women from fuelwood gatherers into micro-entrepreneurs in rural energy markets and energy management; and iv) Generate electricity through wood gasifiers or burning surplus biogas from the community biogas plants, cover such distributed generation together with the local grid under subsidy scheme of RGGVY, and formulate a tariff policy for such distributed generation for both household and productive use including agriculture.

Energy-related R&D
India would find it increasingly harder to import the required commercial energy as India's share of the incremental world supply of oil & gas could be as high as 20% since its demand is growing faster than that of industrialized nations.Research and Development (R&D) in the energy sector is critical to augment our energy resources, to meet India's long-term energy needs, to attain energy independence, to promote energy efficiency and to enhance our energy security.R&D requires sustained and continued support over a long period of time 8 .
Some key policy initiatives for energy related R&D are: i) National Energy Fund (NEF) should be set up to levy a cess (0.1% of turnover of a company) on all companies engaged in primary/secondary energy production with annual turnover above Rs 100 crores; ii) A rebate in cess (up to 80%) may be given to firms carrying out in-house R&D; iii) NEF should provide R&D funding in support of applications, innovative new ideas, fundamental research etc. to researchers in different systems and even individual working independently; iv) Technology missions [coal technologies for efficiency improvement, in-situ gasification, Integrated Gas Combined Cycle (IGCC) and carbon sequestration; solar technologies for thermal and photovoltaics; and bio-fuel technologies for biodiesel, ethanol, wood gasification and community biogas plants] should develop near commercial technologies and rolling out new technologies in a time bound manner; and v) Coordinated R&D should work for more efficient industrial plant, machinery & processes, efficient appliances, hybrid cars, super batteries, nuclear technologies related to thorium and fusion, gas hydrates, and hydrogen production and storage.

Climate Change Concerns
Concern for the threat of climate change has been an important issue in formulating energy policy.Even though India is not required to contain its GHG emissions, as a signatory to the UN Framework Convention on Climate Change, a number of initiatives suggested are as follows: i) Energy efficiency in all sectors; ii) Development of energy efficient transport system; iii) Active policy on renewable energy; iv) Accelerated development of nuclear and hydroelectricity; v) Technology missions for clean coal technologies; and vi) Focused R&D on many climate friendly technologies.

National Energy Modeling System
National Energy Modeling System 9 (NEMS) is an economic energy modeling system, which deals with production, imports, conversion, consumption, and prices of energy, macroeconomic and financial factor, world energy markets, resource availability and costs, behavioral and technological choice criteria, cost and performance characteristics of energy technologies, and demographics.NEMS (Fig. 1) is designed to capture important fundamental interactions of macroeconomic activity, energy demand and supply in energy markets.The modules for various sub-sectors interact concurrently to design optimal solution for sustainable energy sources and environment friendly demands.

Conclusions
India faces an enormous challenge in meeting its energy requirement over the coming 25 years to support 8% growth rate.This challenge can be met by promoting coal imports, accelerating power sector reforms, cutting cost of power, rationalization of fuel prices that promote efficient fuel choice and substitution, promoting energy efficiency and conservation, augmenting energy resources and supply, encouraging renewables, enhancing energy security, promoting R&D on energy, gender equity and empowerment, creating an enabling environment and regulatory oversight for competitive efficiency.

Table 1 -
Demand projection of coal by various industries in million tons

Table 2 -
Renewable energy scenario

Table 4 -
Comparison of India's energy intensity @ Per capital coal consumption of India has been estimated based on the calorific value of hard coal used internationally with a calorific value of 6000 kcal/kg to maintain uniformity.The figures in brackets are actual per capital consumption based on calorific value of Indian coal i.e., 4000 kcal/kg.Source: IEA (2005), Key World Energy Statistics 2005, International Energy Agency (IEA) and Energy Information Administration, USA

Table 3 -
Comparison of initial cost and life cycle cost