The NITI Aayog has released Three Year Action Agenda which is an integral part of the 15-year Vision Document of India being drafted by the NITI Aayog.
The energy sector is one of the key drivers of economic growth and development. Access to reliable sources of energy is a crucial issue. Chapter 13 of "India - 3 Year Action Agenda 2017-20" discusses this subject including actions necessary for increasing energy consumption and increasing energy efficiency and production. It pays particular attention to how we may improve the efficiency of distribution of coal, electricity, oil & gas, and harness renewable energy.
Availability of electricity, petrol, diesel and gas at competitive prices is essential for the efficient functioning of energy user sectors, which include households, transportation, industry, agriculture and the government and comprise nearly the entire economy. But being a large sector, energy also contributes directly to the growth of the economy in a major way.
With multiple markets (coal, gas, oil, renewables, electricity, petrol and diesel) and infrastructure requirements for delivery to the final consumer (transmission and distribution grids, gas pipeline and petrol pumps), energy is one of the most complex sectors of the economy. The presence of scale economies in many sub-sectors, inter-connected nature of different sources of energy, different environmental implications of different fuels and social objective of access to energy at affordable prices greatly add to the complexity of policy making in this sector. Therefore, it is no surprise that the sector is characterized by myriad, often highly inefficient, policy interventions.
Presently, 304 million Indians do not have access to electricity and around 500 million Indians are dependent on solid biomass for cooking. Moreover, India’s per capita electricity consumption remains a fraction of major economies. Average Transmission and Distribution (T&D) power losses stand at 23%. As India fulfils its ambition of 8% plus growth in the coming fifteen years, its energy needs will multiply manifold even taking into account enhanced energy efficiency. There is also a need to bring down the energy intensity of the Gross Domestic Product (GDP) to the level committed under the Paris Agreement.
Initiatives Related to Energy Consumption
Energy is one of the key inputs in raising the standard of living of citizens of a country. For example, per capita electricity consumption and development indicators including Human Development Index (HDI) are highly correlated. Presently, per capita electricity consumption in India stands at 1,010 KWh against the world average of 3,200 KWh. Therefore, there is considerable scope for growth in energy consumption in India. There are four major end users of energy: households, businesses, transportation and agriculture.
India has already committed to bring electricity to every village by May 2018 and to every household by 2022. An even more ambitious goal would be to provide electricity to all households on 24x7 basis.
India is already committed to bringing LPG to 50-80 million households by 2019 under the Pradhan Mantri Ujjwala Yojana (PMUY). As of 6 April, 2017, 20.3 million connections had already been released under the programme. Within the existing LPG network, we must launch a campaign to bring LPG connections down to one per family. We must also target the 100 smart cities for the provision of gas via the City Gas Distribution (CGD).
To bring additional relief against black carbon in cooking, the PMUY programme should be complemented by: 1) Setting up of biomass pelletising units; and 2) launch of a scheme to distribute ‘forced draft efficient biomass chullahs’ supported by a modest subsidy for the vulnerable sections. Using these instruments, we should aim to fully eliminate black carbon by 2022.
For streamlining the demand in the industrial sector, the cross-subsidy in the power sector must be substantially reduced so that industry may receive electricity at competitive prices. Moreover, the reform to reduce the price differential between diesel and petrol should be continued.
On the agricultural front, solar irrigation pump distribution target must be stepped up and financed through credit support from NABARD and government subsidy. The option to connect irrigation pumps to feeder level small solar plants must be explored and, if found cost effective, should be exercised. Finally, the government should explore the prospects for switching over to electric cooking in areas where reliable supply of electricity already exists. It must also study the costs and benefits of adoption of electric vehicles in the coming years.
Though the cost of electric battery has declined recently, it still remains high. At the same time, its operating cost per kilometre driven is lower and it contributes to cutting city pollution.
Energy efficiency refers to reduction in energy use for the same product or service. For example, a more fuel-efficient car uses less petrol per mile travelled than a less fuel-efficient car. Likewise, a Light Emitting Diode (LED) bulb consumes less electricity per hour for a given level of illumination than a conventional bulb.
If more energy-efficient technology also costs less per unit of product or service, it will be adopted automatically. If the opposite is the case, it will not be adopted automatically. Nor is it the case that it should be necessarily adopted. Desirability of adoption in such a case depends on whether the higher cost is more than offset by the social benefit via reduced pollution.
If the social benefit from reduced pollution is judged to be higher than the cost of higher energy efficiency, it is desirable for the government to intervene to implement the higher energy efficiency standard. This can be done either by mandating the higher standard or giving a subsidy in the product embodying the higher standard.
This analysis leads to the conclusion that the promotion of energy efficiency through intervention must depend on cost-benefit analysis. De-carbonization alone cannot be the justification for promoting a more energy efficient technology. The benefit from de-carbonization must outweigh its cost.
In the near to medium term, India must adopt cost-effective energy efficiency policy solutions. It should intervene in the market only when it is clear that the benefits from cutting pollution outweigh the extra cost of the energy efficient solution. Such an approach will lay the groundwork for making India a more energy efficient economy by 2031-32.
The following are possible action points in the coming three years.
First, the National Mission for Enhanced Energy Efficiency (NMEEE) must conduct a thorough cost-benefit analysis of the available energy-efficient technologies and products across all sectors, especially agriculture, housing and transportation. Based on this analysis, we must extend the reach of the energy efficiency programmes to sectors not presently covered. A nation-wide awareness programme to build confidence in energy efficiency gains must be a part of this mission.
Second, India should focus on continuing the success of Cycle I of the Perform, Achieve and Trade (PAT) policy into the recently launched Cycle II. The PAT policy exemplifies India’s priority in terms of achieving energy efficiency in a manner that also concurrently delivers economic benefits. PAT Cycle I (2012-15), which focused on 478 Designated Consumers (DC) in eight energy intensive sectors, achieved energy saving of 8.67 Million Tonnes of Oil Equivalent (Mtoe). This achievement was 30% higher than the energy saving target of 6.886 Mtoe. It led to emission reduction of 31 million tonnes of CO2 while cutting the need for electricity generation by 5,635 MW and thus resulting in cost saving of Rs 37,685 Crore.
The PAT cycle II will run from 2016 to 2019 covering 621 DCs from 11 sectors and targeting energy saving of around 8.869 Mtoe. Cycle II also includes three additional sectors of Refinery, Railways and Electricity Distribution Companies (DISCOMs). The regulator Central Electricity Regulatory Commission has already approved the trading of Energy Savings Certificates (ESCerts) in February 2017. We recommend that the trading of EScerts should commence at the earliest. Moreover, if found cost effective, the PAT policy should be aligned to Best Available Techniques (BAT).
Third, since majority of energy generation in India is through thermal plants, even a small improvement in efficiency at such plants will help India yield large gains. Majority of the Indian coal-fired power plants operate on 30% - 32% energy efficiency and average CO2 emissions of 1.08g kg/kWh – both indicators put India on the lower band of the world comparison table. By 2019, the following actions may be undertaken to increase the efficiency of the thermal plants:
- The efficiency of existing thermal plants should be raised through Renovation and Modernization (R&M).
- The old plants with high station heat rate, especially when located in or near heavily populated regions, should be phased out.
- The collaborative research and development on Integrated Gasification Combined Cycle (IGCC) between NTPC Limited and Bharat Heavy Electricals Limited (BHEL), and other agencies should be actively pursued.
- New power projects to be initiated during the Action Agenda period, especially if located in or near heavily populated areas, should be on ultra- super critical technology which uses 20% less coal per unit of electricity as compared to a subcritical coal plant.
Fifth, at the institutional level, the national and state designated agencies working in the area of energy efficiency should be strengthened. The strong institutions will ensure that proper cost-benefit analysis is applied when promoting energy efficient technologies and the emission norms for power sector are strictly complied with in specified timelines.
Sixth, the momentum of gains through the use of LED lightning through Domestic Efficient Lighting Programme (DELP) for LEDs should be extended to ACs, fans and pumps by 2019. Also, all the appliances should be brought under Standards and Labelling programme.
Finally, to enhance vehicle fuel efficiency gains, the auto fuel quality should be upgraded to BS VI norms for nation-wide launch in 2020.
Increasing Coal Production and Improving the Efficiency of its Distribution
The reality of India’s energy sector is that around three-quarters of our power comes from coal powered plants and this scenario will not change significantly over the coming decades. Thus, it is important that India increases its domestic coal production to provide energy security and reduce its dependence on imports. The energy security may be further enhanced through diversification of the import sources and reduced energy requirement. The following steps needs to be undertaken to boost coal production and distribution.
First, by 2019, the government will explore 25% of the untapped 5,100 sq km balance coal bearing area to ensure availability of more coal mining blocks. Also, it will step up the efforts to convert 25% of the 139.15 billion tonnes of coal reserves as on 31st March, 2016 in the ‘Indicated’ category into ‘Proved’ category by engaging top exploration companies with attractive contractual provisions. Moreover, Coal India Limited (CIL) has to raise its production from the current level of 536.5 million tonnes (MTs) in 2015-16 to 1 billion Tonnes by 2019-20, depending on coal demand. Similarly, the current annual production level of Singareni Collieries Company Limited (SCCL) is envisaged to increase from 60.40 MTs to 80 MTs by 2019-20.
Second, at the institutional level, an independent organisation will be created to develop and maintain the repository of all coal related geological information in the country. The proposal to set up a Coal Regulator for fostering competition in the coal sector apart from advising Central Government on the formulation of the principles and methodologies for determination of price of raw coal and washed coal will be implemented.
Third, we must use market mechanisms to open the coal-mining sector for commercial mining. Allowing specialized mining firms to mine coal can go a long way towards improving the efficiency of mining. We must also take steps to transition to coal pricing on commercial lines. There is need to end the current practice of segmenting coal markets between power and non-power sectors with subsidy being given to the ultimate intended beneficiary through direct benefit transfer. The implementation of the proposal to spin-off the subsidiaries of CIL as separate public sector entities must also be implemented so that they may independently develop their own strategies and business models.
Fourth, efforts must be made to improve labour productivity, increase coal production and enhance efficiency of distribution. The output per man shift (OMS) from underground mines should be raised to increase coal production from underground coalmines, which is currently around 8% of the total coal production.
Fifth, we must leverage the critical role of railways in coal distribution. In 2014, 50 million tons of coal could not be distributed in a timely fashion due to rail limitation. By 2019 we must complete the three critical Railway lines namely Tori-Shivpur, Jharsuguda-Barpalli and Mand-Raigarh to significantly augment coal evacuation.
Sixth, the government must employ more Coal-Handing and Preparation Plants (CHPP) that wash coal before shipping. This process removes ash and debris, thereby increasing the energy content per tonne by 10-20%. Thus, 15 new Coal Washeries, including 6 Coking Coal washeries with a capacity of 18.60 MTPA and 9 non-coking Coal washeries with a capacity of 94 MTPA should be commissioned to meet the Ministry of Environment, Forest and Climate Change (MoEFF & CC) Guidelines. This objective can be met more efficiently if we permit commercial mining of coal with foreign investors allowed to participate so that the state-of-the-art technologies are introduced.
Seventh, on the lines of China, the Indian government must take steps to reduce the use of low quality coal. The quality used in India has high ash content and low energy content. Based on this quality, India uses 650 grams coal per kWh. Whereas, in 2015 China reported use of 308 grams coal per kWh and further targets less than 300 gms coal per kWh under 2014-2020 State Council Energy Action Agenda.
Eighth, steps need to be taken to adopt clean-coal technologies including coal gasification.
Finally, to boost production, the on-going auction process and transfer of mining lease and other related activities of captive mines to the new successful bidders should be expedited by 2018. The production from captive blocks has been targeted at 400 MT by 2020; the yearly targets should be devised and, where required, coalmines should be
re-allocated to achieve the above target.
Increasing electricity generation and streamlining transmission and distribution
To accelerate growth and bring electricity to all at the earliest, India needs to take several steps aimed at increasing electricity generation, overhauling transmission and improving distribution.
For boosting electricity generation, India is also betting on nuclear energy. As of 31st March 2016, India had 21 operating nuclear reactors with an aggregate capacity of 5.8 Giga Watt (GW). This capacity accounted for 1.9% of India’s total installed electricity generation capacity in 2015-16. Nuclear energy sector also has additional six reactors with 4.3 GW installed capacity under various stages of construction or commissioning. By 2032, India wants to increase the nuclear power capacity from 5.8 GW to 63 GW. Towards this goal, fresh capacity of 2.8 GW must be added by 2019. In turn, this would require commissioning the 600 MW Prototype Fast Breeder Reactor (PFBR). Work on new nuclear projects under construction at existing locations and Kudankulam-3&4 would have to be actively pursued.
From 2017-18 through 2019-20, we are likely to add 61.6 GW electricity generation capacity through all conventional sources. In addition, we must realize generation capacity of 6.9 GW through the large hydro projects by 2019-20. For the hydro projects, the government will need to make efforts to expedite progress on capacity under construction through satisfactory Rehabilitation & Resettlement implementation. Our goal of adding generation capacity of 15.8 GW in wind power and 53 GW in solar power over the next three years will require concerted effort.
In view of the currently declining Plant Load Factor (PLF) (60% in 2016-17), the government must ensure that fresh capacity augmentation beyond 2019-20 is scheduled as per demand for power and operational viability. Moreover, the PLFs of gas based power capacity (24.8% in 2015-16) must be raised to achieve grid balance. For this, government support for inducting LNG in power generation will be required. In addition, India must leverage regional connectivity to boost electricity generation. During 2017-18 to 2019-20, the cross border trade in electricity must be facilitated with neighbouring countries. The JV Hydel projects in Bhutan should be expedited, and the transmission corridor on the Indian side must be readied for evacuation of its electricity.
Apart from electricity generation, India also has to overhaul its transmission and distribution across the nation. In 2015, India reported one of the world’s worst T&D losses (23%) contributing to very high Aggregate Technical and Commercial (AT&C) losses (25%). India must take a number of measures to limit these losses. First, for a robust National Grid, the transmission capacity to South India must be increased to 18.4 GW in the next 3 years. Second, 100% metering, indexing and real time monitoring of all 11 KV feeders must be achieved for all electricity consumers and feeders. Third, efforts must be made to achieve the targets of Ujwal DISCOM Assurance Yojna (UDAY) by cooperative efforts between the Centre and states. The yearly targets relating to several parameters as identified under the scheme must be set and actively monitored. We must also ensure that the DISCOMs do not suffer with working capital paucity.
Augmenting Supply of Oil and Gas
India’s consumption of oil and gas far exceeds its domestic production capabilities. India not only imports coal but also oil and gas. Given the availability of domestic reserves of oil and gas and the prospects of their exploitation at competitive prices, there is a strong case for increased E&P at home and reduced dependence on imports. In due course, we may also consider building strategic reserves as insurance against disruption of import supplies.
India’s proved crude oil reserves as of April 2016 stand at around 5.7 billion barrels. The majority of the domestic oil production is located at the western offshore fields, out which 40% is accounted by the Mumbai High Basin.
However, despite the successive governments’ efforts, oil production has fallen far short of demand. For instance in 2013, oil production in India at 1 million barrels per day (mmbd) was considerably below the demand of 3.7 mmbd.
Several measures are suggested for boosting oil and E&P capabilities of India:
First, to expand E&P, in the next 3 years, another 25% of the remaining unexplored area out of 3.14 million square km of sedimentary area should be awarded for initiation of exploration. Exploration should be initiated in all the remaining 11 sedimentary basins.
Second, by 2017-18, the Indian Government should launch Open Acreage Licensing Policy (OALP), which would facilitate award of acreages throughout the year, instead of periodic bidding rounds. Further, the government should launch a programme to undertake seismic survey of all un-awarded acreages, including from basins where exploration has not been initiated, and host the same on the National Data Repository (NDR). NDR should be launched in 2017 for open viewing of data and operationalization of OALP. These actions in near term are likely to significantly boost E&P activities.
Third, all discoveries under the Production Sharing Contract (PSC) rounds should be rationalised, either towards monetisation or surrender to the government for recycling under OALP. Moreover, third-party assessments of full potential of nominated production fields should be undertaken by the Directorate General of Hydrocarbons (DGH) and technology inducted to raise the recovery factors of oil / gas.
Fourth, the issue of simultaneous exploitation of all hydrocarbons should also be resolved for the existing contractors / licensees. These actions should be supported by strengthened regulatory mechanism through suitable changes to the Upstream and Downstream regulatory framework.
Fifth, on the lines of the nominated acreages, the existing blocks/fields under PSC regime that have moved into appraisal / development stages of their contracts, should be granted rights to explore further (including shale oil/gas) through appropriate contract amendments.
Sixth, the early gains on E&P can be made by launching a policy to re-start exploration in the ‘S’ type small blocks that are facing contractual violations due to time and Minimum Work Programme (MWP) violations. The Coal-bed methane (CBM) production should be enhanced by bringing coal bearing areas/coal mines under exploitation.
Seventh, on the issue of removal of bottlenecks, the policy for sharing of upstream infrastructure by new developers should be launched. Also, all legacy issues/contractual disputes should be considered by an inter-ministerial empowered mechanism for speedy resolution.
Finally, global companies should be offered business support/incentives to set up R&D centres in India to undertake India-specific research, and also to manufacture tools/equipment under ‘Make in India’ campaign. Whereas, overseas acquisitions of both exploratory and discovered properties should be actively pursued with a view to achieve production level of 20% of India’s oil/gas consumption by 2020.
Augmented refining and distribution of oil and gas
India’s oil and gas production is critically short of the demand. While boosting the E&P activities, it is also critical to augment refining and distribution capacity of oil and gas.
First, by 2019, India should sustain its export capacity of refined products by setting up new refineries - the PSUs may start construction work on new refineries of 60 million metric tonnes per annum (MMTPA) capacity. Also, the Refineries should upgrade their processing capacity to meet petroleum fuel quality standards of BS-VI.
Second, within next three years the government should liberalise trade of all petroleum products in fair and transparent manner to expand the coverage of un-served regions by facilitating the entry of private enterprises.
Third, in the next three years, the tax structure should be rationalized in import and sale of energy on thermal value basis with a view to enhance the competitiveness of the economy. By 2019-20, we must set up strategic cum commercial oil reserves up to 90 days’ of consumption through public and private investment.
Fourth, the Oil Marketing Companies (OMC) should be nudged towards developing a near-term action plan. The government should promote bio-fuels by the OMCs by procuring them at market-determined price - OMCs should aim at 10% ethanol blending in petrol by 2020. In addition, the OMCs should be encouraged to procure crude efficiently to reduce the price of crude imports by leveraging the large crude buying power of India.
Fifth, the Liquefied Natural Gas (LNG) receiving capacity should be doubled by 2022, by facilitating evacuation and marketing of LNG. A systematic plan should be launched by 2019-20 to connect markets with LNG terminals by pipelines, and suitably changing downstream pricing policies. The government must coordinate efforts to provide purchase support so that LNG supplies contracted by companies (both upstream and downstream) and LNG re-gasification capacities are not distressed.
Sixth, to remove distortion in the gas market, the government should eliminate multiple prices in natural gas, by moving to market determined pricing. By 2019-20, the policy should be launched for creation of commercial and strategic storage of gas, including by offering depleted nominated gas fields.
Finally, for expanding the penetration of natural gas, the CGD network should be extended to 326 cities by 2022 through suitable changes in bidding/regulatory practices of Petroleum and Natural Gas Regulatory Board (PNGRB). The work should also be resumed in about 10,258 km gas pipelines bid out by PNGRB, by suitably incentivizing pipeline companies with better tariff mechanism, assured throughput and Viability Gap Funding (VGF) support, as per the specific situation.
Expanding the Installation, Generation and Distribution of Renewable energy
India is looking at using renewable energy to meet multiple objectives: energy security, energy efficiency, de-carbonization, and sustainability, among others. India’s fossil fuel requirements, which comprise nearly 90% of primary energy supply, are increasingly being met by imports. India is also committed to meeting its commitments stated in the Paris Agreement. Renewable energy is an element in achieving these objectives. The following actions are recommended in this context.
First, a renewable energy capacity of 100 GW should be achieved by 2019-20 so as to contribute to achievement of 175 GW target by 2022. The financial support for renewable sector will be aimed at promoting generation and infrastructure creation rather than mere capacity creation.
Second, the off-grid target of 40 GW of solar energy by 2022 may be apportioned between residential, commercial, industrial and agricultural sectors with a target of achieving 20 GW capacity by 2019-20. The residential off-grid capacity should be developed through a robust regulatory and policy framework including a remunerative net metering policy. The two phases of Green corridor project should be executed so as to evacuate the renewable generation available in 2019-20.
Third, Solar Energy Corporation of India Limited (SECI) should develop storage solutions within next three years to help bring down prices through demand aggregation of both household and grid scale batteries.
Fourth, at the institutional level, all 8 Renewable Energy Management Centres (REMCs) should be operationalized to activate grid planning between Central Power System Operation Corporation Limited (POSOCO) and / State Load Despatch Centre (SLDCs) to ensure smooth dispatch of renewable electricity. The central / state agencies should provide infrastructural, transmission and purchase support to developers to help achieve the renewable target of the country. Moreover, a friendly eco-system for integration of renewable electricity should be created by changing / improving the regulatory practices and better coordination, through state specific renewable action plans.
Fifth, by 2019-20, a robust market for renewable power should be created through effective implementation of Renewable Purchase Obligations (RPOs) especially in the light of uniform targets having been announced. The renewable rich states may be encouraged to sell power to renewable poor states.
Sixth, a large programme should be launched to tap at least 50% of the bio-gas potential in the country by supporting technology and credit support through NABARD by 2020.
Finally, Small Hydro Power (SHP) target of 5000 MW by 2022 should be advanced to 2019-20 through VGF and tariff support, which will also aid balancing of variable solar energy in de-centralised locations.