India%27s Strategy Toward Energy Development

8/7/2019 India%27s Strategy Toward Energy Development

1/21

INDIAS STRATEGY TOWARD ENERGY DEVELOPMENTAND ENERGY SECURITY

*

R.V. ShahiSecretary to the Government of India

Ministry of Power

Energy is the prime mover of economic growth. Availability of energy withrequired quality of supply is not only key to sustainable development, but also thecommercial energy has a direct impact and influence on the quality of service inthe fields of education, health and, in fact, even food security. Inadequacy ofenergy supply would obviously affect very adversely these vital and essentialrequirements of any society. There is, therefore, an urgent need to enhancesubstantially the energy availability at a rapid pace so that aspirations of thosewho have remained insulated from such important inputs and services arefulfilled and they are enabled to have a reasonable access.

2. There is a big divide between the developed and the developing countriesin per capita availability of energy. The developed countries not only have asignificantly higher per capita energy consumption but also mainly depend oncommercial energy. On the other hand, developing countries are highly energydeficient and also the large proportion of energy consumed is comprised of non-commercial energy sources such as bio-mass. As per the projections made byInternational Energy Agency (IEA), most of the developing countries are notexpected to reach, even by the year 2030, the level of Energy DevelopmentIndex achieved by the OECD countries way back in 1971. There is an urgentneed to revisit the prevailing world energy order and to initiate necessary stepsand to restructure and augment investments and technology transfer strategiesto expand the reach of commercial energy to all the countries as per theirdevelopmental needs.

3. With consumption of 530 kg of oil equivalent per person of primary energyin the year 2004 compared to 1240 kg of oil equivalent per person in China andthe world average of 1770 kg of oil equivalent per person, Indias per capitaconsumption of energy has been quite low, despite the fact that India is the sixthlargest electricity market in terms of power generation. Per capita electricityconsumption in India is only 615 Kwhr per year as compared to world average of2516 Kwhr and 1585 Kwhr in China.

4. On 9th December, 2006, while speaking to the Chief Ministers of all theStates in the meeting of the National Development Council, the Prime Minister ofIndia outlined the approach to the Eleventh Five Year Plan (year 2007-12) andsaid The GDP growth target proposed in the Approach Paper involvesaccelerating growth rate from 8% likely to be achieved in the base year (2007-08)

* Paper presented to the Board of International Energy Agency at Sydney on 12 th December, 2006 in the

Seminar on Energy Insights from Asia Pacific.

1


2/21

to 10% in the final year (2011-12) of the Plan, yielding an average of 9% growthin the XI Plan period. This is ambitious but feasible. Growth has averaged 8 percent over the past three years and is likely to be at this level again this year. Thishas never happened in the past. If we achieve the target of 9% growth in the 11thPlan, India will be firmly placed in the front ranks of fast growing economies.

Most observers believe that we are at a historic cusp when this transition ispossible. To deliver a sustained growth rate of 8% to 9% through next 25 yearstill 2031-32 and to meet the life line energy needs of all citizens, India needs, atthe very least, to increase its primary energy supply by 3 to 4 times and itsElectricity generation capacity by about 6 times.

5. Thus, if we take a conservative view, Indias commercial energy supplywould need to grow at the rate of 6% per annum while its total primary energysupply would need to grow at 5% annually. This is based on the assumption thatelasticity of GDP in relation to supply of energy would be less than 1. However,this assumption may not be true entirely as, over a period of time, when economy

grows, industrial sector is bound to increase at a faster pace and thus with thechange in sectoral composition, demand of electricity would grow at much fasterrate than projected above. Increase in the reach of the electricity has its owndynamism and would certainly act as catalyst towards more demand of electricitywith growing consumerism in the country. Therefore, the correlation betweenelectricity growth and GDP will tend toward 1:1. As noted economist Samuelsonhas said that choices create its own preferences. This is true in the context ofIndian energy sector as well. We believe that availability of electricity createsdemand for electricity.

6. To meet the growing demand, there is a difference of opinion among theexperts about supply options and market structure. One school of thoughtadvocates that a competitive market is the most efficient way to realize optimalfuel and technology choices for extraction, conversion, transportation, distribution,supply and end use of energy. This approach believes that an energy marketbeing managed on competitive principles is bound to minimize market distortionsand maximize efficiency gains. However, there is another school of thoughtwhich questions the wisdom of assuming automatic efficiency gains in utterdisregard to the prevailing market conditions and absence of a matured marketwith sufficient number of players in the supply chain and highly skewed demand

supply mis-match. Nobel Laureate Amratya Sen forcefully argues, Marketmania involves an under-examined faith in the efficiency and other virtuesof the market, regardless of the context.

7. Primarily there is no disagreement with the fundamentals of marketapproach. The problem arises when an ideal goal is projected without a skillfullystructured road map to reach the goal. Management of transition to a maturedmarket is what needs to be appreciated. In absence of tangible number ofmarket players, particularly in supply chain, our fear is not misplaced inassuming that in case we have two or three big players in mind when we talk of

2


3/21

competition, then strong cartels is always a possibility with a sole aim of sharingthe supernormal profits. In such a situation assumption of passing of efficiencygains to consumers may not hold good.

INTEGRATED ENERGY POLICY

8. The Committee set up by the Government of India has recently come outwith the Integrated Energy Policy, which aims to bridge the prevailing gap in thedemand and supply of energy in short, medium and long term perspective.Recognizing the role of both private and public sector participation in meeting theenergy needs of the country, the policy strikes a right balance by stating thatwherever possible energy market should be competitive. However, competitionalone has been shown to have its limitation in a number of areas of the energysector and independent regulation becomes even more critical in such instances.

9. The approach of Integrated Energy Policy is summarized below :-

(a) Till market matures in independent regulation across the energystreams is a necessity.

(b) Pricing and resource allocation to be determined by market forcesunder an effective and credible regulatory oversight.

(c) Transparent and targeted subsidies.

(d) Improved efficiencies across the energy chain.

(e) Policies that reflect externalities of energy consumption.

(f) Incentives / disincentives to regulate market and consumer behaviour.

(g) Management reforms to foster accountability and incentives forefficiency.

10. The broad vision behind the Energy Policy is to reliably meet the demandfor energy services of all sectors at competitive prices. Further, lifeline energyneeds of all households must be met even if that entails directed subsidies tovulnerable households. The demand must be met through safe, clean andconvenient forms of energy at the least-cost in a technically efficient,economically viable and environmentally sustainable manner. Considering theshocks and disruptions that can be reasonably expected, assured supply of suchenergy and technologies at all times is essential to providing energy security forall. Meeting this vision requires that India pursues all available fuel options andforms of energy, both conventional and non-conventional. Further, India mustseek to expand its energy resource base and seek new and emerging energy

3


4/21

sources. Finally, and most importantly, India must pursue technologies thatmaximize energy efficiency, demand side management and conservation. Coalshall remain Indias most important energy source till 2031-32 and possiblybeyond. Thus, India must seek clean coal combustion technologies and, giventhe growing demand for coal, also pursue new coal extraction technologies such

as in-situ gasification to tap its vast coal reserves that are difficult to extracteconomically using conventional technologies.

11. Key Recommendations of the Policy are summarised below: TheReport of the Committee is under examination of the Government.

11.1 Ensuring Adequate Supply of Coal with Consistent Quality: Coal accountsfor over 50% of Indias commercial energy consumption and about 78% ofdomestic coal production is dedicated to power generation. This dominance ofcoal in Indias energy mix is not likely to change till 2031-32. Keeping in view thecompetitiveness of coal based power generation through imported coal at coastal

areas, power projects at coastal locations to be encouraged.

11.2 Ensuring Availability of Gas for Power Generation: There is a totalgeneration capacity of 12,604 MW based on gas and liquid fuels. Bulk of it isbase loaded under combined cycle operation. However, gas supplies have beenrestricted and the overall utilization remains at only 54.5%. While requiring thatno new gas capacity be built without firm and bankable gas supply agreements,effort should be made to allocate available domestic gas supplies to the fertilizer,petrochemicals, transport and power sectors at prices that are regulated to yielda fair return to domestic gas producers. Such a practice should be enforced till abetter demand-supply balance emerges and domestic gas production achievessome of the potential that is often cited. A more competitive market can thenfunction.

11.3 Power Sector Reforms: These must focus on controlling the aggregatetechnical and commercial losses of the state transmission and distribution utilities.This is essential to creating a financially robust power sector in each state. Onlyfinancially healthy state power distribution utilities can provide the neededcomfort on payment security to attract private investment in the power sector atinternationally competitive tariffs. Our recommendations:

q Control of huge technical and commercial losses in distribution.

q Liberal captive and group captive regime foreseen under the ElectricityAct 2003 be realized on the ground.

q To achieve these objectives, it is essential to separate the cost of thepure wires business (carriage) from the energy business (content) inboth transmission and distribution at different voltages.

4


5/21

q Open access provisions of Electricity Act, 2003 to be implemented.

q A robust and efficient inter-state and intra-state transmission systemwith adequate surplus capacity that is capable of transferring powerfrom surplus regions to deficit regions is a must for ensuring optimal

operation of the system.

q Rehabilitation of existing thermal stations could raise capacity at least-cost in the short-run.

11.4 Reduction in Cost of Power: In terms of purchasing power parity, powertariffs in India for industry, commerce and large households are among thehighest in the world. It is important to reduce the cost of power to increase boththe competitiveness of the Indian economy and also to increase consumerwelfare.

q

The Government Policy should ensure that generation andtransmission projects should be competitively built on the basis oftariff-based bidding. Public Sector Undertakings shall also beencouraged to participate in such bids even though the tariff policyallows them a 5 year window wherein projects undertaken by thepublic sector need not be bid competitively.

q Regulators should set multi-year tariffs and differentiate them by timeof day.

q Develop market-based instruments that effectively extend the tenure ofdebt available to power projects to, perhaps, 20 years. This will reducethe capacity charge in the earlier years and spread it more evenly overthe life of the project.

q Unit sizes should be standardised and global tenders invited for anumber of units to get substantial bulk discount.

q Distribution should be bid out on the basis of a distribution margin orpaid for by a regulated distribution charge determined on a cost plusbasis including a profit mark up similar to that paid for generation assuggested above.

11.5 Rationalization of Fuel Prices: Relative prices play the most important rolein choice of technology, fuel and energy form. They are thus the most vital aspectof an Integrated Energy Policy that promotes efficient fuel choices and facilitatesappropriate substitution.

11.6 Energy Efficiency and Demand Side Management: Lowering the energyintensity of GDP growth through higher energy efficiency is important for meeting

5


6/21

Indias energy challenge and ensuring its energy security. The energy intensity ofIndias growth has been falling and is about half of what it used to be in the earlyseventies. Currently, we consume 0.16 kg of oil equivalent (kgoe) per dollar ofGDP expressed in purchasing power parity terms. Indias energy intensity islower than the 0.23 kgoe of China, 0.22 kgoe of the US and a World average of

0.21 kgoe. Indias energy intensity is even marginally lower than that of Germany& OECD at 0.17 kgoe. However, Denmark at 0.13 kgoe, UK at 0.14 kgoe andBrazil & Japan at 0.15 kgoe are ahead of India. These figures and many sectoralstudies confirm that there is room to improve and energy intensity can be broughtdown significantly in India with current commercially available technologies.

Lowering energy intensity through higher efficiency is equivalent tocreating a virtual source of untapped domestic energy and aggressivepursuit of energy efficiency and conservation, it is possible to reduceIndias energy intensity by up to 25% from current levels.

Efficiency can be increased in energy extraction, conversion,transportation, as well as in consumption. It must

Enforce truthful labelling on equipment, and impose major financialpenalties if the equipment fails to deliver stated efficiencies. In extremecases, resort to black listing of errant suppliers on consumerinformation web sites and in government procurement.

Establish benchmarks of energy consumption for all energy intensivesectors.

Disseminate information, support training and reward best practiceswith national level honours in energy efficiency and energyconservation.

Require a least-cost planning approach to provide a level playing field,to Negawatts and Megawatts so that regulators permit the same returnon the investment needed to save a watt as to supply an additionalwatt.

Promote minimum life cycle cost purchase instead of minimum initialcost procurement by the government and the public sector.

11.7 Augmenting of Resources for Increased Energy Security: Indias energyresources can be augmented by exploration to find more coal, oil and gas, or byrecovering a higher percentage of the in-place reserves. Developing the thoriumcycle for nuclear power and exploiting non-conventional energy, especially solarpower, offer possibilities for Indias energy independence beyond 2050.

6


7/21

Covering all coal bearing areas with comprehensive regional anddetailed drilling could make a significant difference to the estimated lifeof Indias coal reserves.

q

q

q

q

q

Indias extractable coal resources could be augmented through in-situ

coal gasification which makes use of those coal deposits which are atgreater depth and cannot be extracted economically by conventionalmethods.

Extracting coal bed methane before and during mining could augmentthe countrys energy resources.

Enhanced oil recovery and incremental oil recovery technologies couldimprove the proportion of in-place reserves that could be economicallyrecovered from abandoned/depleted fields.

Isolated deposits of all hydro carbons including coal may be tappedeconomically through sub leases to the private sector.

11.8 Using Energy Abroad: In case India can access cheap natural gasoverseas under long-term (25-30 years) arrangements, it should consider settingup captive fertiliser and/or gas liquefaction facilities in such countries. This wouldessentially augment energy availability for India.

11.9 Role of Nuclear and Hydro Power:

Full realization of Hydro potential of the country by 2032. India has apotential of 1,50,000 MW capacity. The exploitation has been only tothe extent of about 20%.

Nuclear energy theoretically offers India the most potent means tolong-term energy security. India has to succeed in realising the three-stage development process described in the main report and therebytap its vast thorium resource to become truly energy independentbeyond 2050. Continuing support to the three-stage development ofIndias nuclear potential is essential.

11.10 Role of Renewables: From a longer-term perspective and keeping in mindthe need to maximally develop domestic supply options as well as the need todiversify energy sources, renewables remain important to Indias energy sector. Itwould not be out of place to mention that solar power could be an importantplayer in India attaining energy independence in the long run. With a concertedpush and a 40-fold increase in their contribution to primary energy, renewablesmay account for only 5 to 6% of Indias energy mix by 2031-32. While this figure

7


8/21

appears small, the distributed nature of renewables can provide many socio-economic benefits.

11.11 Ensuring Energy Security: Indias energy security, at its broadest level, isprimarily about ensuring the continuous availability of commercial energy at

competitive prices to support its economic growth and meet the lifeline energyneeds of its households with safe, clean and convenient forms of energy even ifthat entails directed subsidies. Reducing energy requirements and increasingefficiency are two very important measures to increase energy security.However, it is also necessary to recognise that Indias growing dependence onenergy imports exposes its energy needs to external price shocks. Hence,domestic energy resources must be expanded. For India it is not a question ofchoosing among alternate domestic energy resources but exploiting all availabledomestic energy resources to the maximum as long as they are competitive.

Ensuring energy security requires dealing with various risks. The threat to

energy security arises not just from supply risks and the uncertainty of availabilityof imported energy, but also from possible disruptions or shortfalls in domesticproduction. Supply risks from domestic sources, such as from a strike in CIL orthe Railways, also need to be addressed. Even if there is no disruption of supply,there can be the market risk of a sudden increase in energy price. Even when thecountry has adequate energy resources, technical failures may disrupt the supplyof energy to some people. Generators could fail, transmission lines may trip or oilpipelines may spring a leak. One needs to provide security against suchtechnical risks. Risks can be reduced by lowering the requirement of energy byincreasing efficiency in production and use; by substituting imported fuels withdomestic fuels; by diversifying fuel choices (gas, ethanol, orimulsion tar sandsetc.) and supply sources; and by expanding the domestic energy resource base.Risks can also be dealt with by increasing the ability to withstand supply shocksthrough creation of strategic reserves, the ability to import energy and facemarket risk by building hard currency reserves and by providing redundancy toaddress technical risks. Following has been recommended:

Maintain a reserve, equivalent to 90 days of oil imports for strategic-cum-buffer stock purposes and/or buy options for emergency suppliesfrom neighbouring large storages such as those available inSingapore.

q

q Since 80 percent of global hydrocarbon reserves are controlled bynational oil companies controlled by respective governments, oildiplomacy establishing bilateral economic, social and cultural ties canreduce supply risk.

11.12 Boosting Energy Related R&D: Demonstrations of new technologies, theireconomic assessment and further R&D to make the new technology acceptableand attractive to customers could follow, before finally leading to

8


9/21

commercialisation and diffusion. Some key policy initiatives relevant to energyrelated R&D are detailed below:

q A National Energy Fund (NEF) should be set-up to finance energyR&D. Much of R&D can be considered a public good. It is thus better

financed by the Government. Initially an allocation of Rs.1000 croresshould be made for energy R&D excluding atomic energy.

q A number of technology missions should be mounted for developingnear-commercial technologies and rolling out new technologies in atime bound manner. These include coal technologies (where Indiashould focus) for efficiency improvement; in-situ gasification; IGCC andcarbon sequestration; solar technologies covering solar- thermal andphotovoltaics; bio-fuels such as bio-diesel and ethanol; bio-massplantation and wood gasification, and community based bio-gas plants.

q

The NEF could provide R&D funding in support of applications,innovative new ideas, fundamental research etc. to researchers indifferent institutions, universities, organisations and even individualsworking independently.

q A number of academic institutions should be developed as centres ofexcellence in energy research.

11.13 Household Energy Security - Electricity and Clean Fuels for All:Electrification of All Households:

q The government has announced its commitment to ensure this by2009-10.

q Provision of Cooking Energy: We may set a goal to provide cleancooking energy such as LPG, NG, biogas or kerosene to all within 10years. It may be noted that the requirement of cooking energy does notincrease indefinitely with income. Thus the total amount of LPGrequired to provide cooking energy to 1.5 billion persons is around 55Mtoe.

q Other Sources: We may provide fuel wood plantations within onekilometre of all habitations. Those who do not have access or cannotafford even subsidised clean fuels, rely on gathering wood.Neighbourhood plantations can ease their burden and the time takento gather and transport wood.

q To make the rural electrification programme (Rajiv Gandhi GrameenVidyutikaran Yojana) sustainable, a business plan with a viablerevenue model needs to be elaborated. A clear pricing and subsidy

9


10/21

policy and the means of targeting the subsidy need to be announcedsoon. Local bodies, panchayati raj institutions, NGOs or even localentrepreneurs can take the franchise to run the local network.Womens self-help groups can also be empowered to do so.

q

The best way for providing subsidy for electricity and cleaner fuels,kerosene or LPG, is to entitle targeted households to 30 units ofelectricity per month and LPG, kerosene or bio-gas purchased from alocal community size plant equivalent to 6 kg of LPG per month. Asystem of debit cards may be introduced to deliver such a subsidy. Theentitlements can only be used for purchase of these products. Withmodern ICT, debit card readers operated on battery and feeding datausing mobile technology, can work in rural areas of the country as well.

National Electricity Policy

12. The Government of India decided and notified the National ElectricityPolicy in February, 2005. The policy aims at accelerated development of powersector, providing supply of electricity to all areas and protecting interests ofconsumers and other stakeholders.

12.1 Objectives of the Policy are:

Access to Electricity Available for all households in next five years.

Availability of Power Demand to be fully met by 2012. Energy andpeaking shortages to be overcome and spinning reserve to be available.

Supply of Reliable and Quality Power of specified standards in an efficientmanner and at reasonable rates.

Per capita availability of electricity to be increased to over 1000 units by2012.

Minimum lifeline consumption of 1 unit/household/day as a merit good byyear 2012.

Financial Turnaround and Commercial Viability of Electricity Sector.

Protection of consumers interests.

12.2 The Policy prescribes development of Rural Electrification Distributionbackbone, village electrification and household electrification to achieve thetarget of completing household electrification in next five years, financial supportin terms of capital subsidy to States for rural electrification and special preference

10


11/21

to Dalit Bastis, Tribal Areas and other weaker sections for rural electrification.REC to be nodal agency for rural electrification at Central Government level.

12.3 The Policy emphasizes(i) creation of adequate generation capacity with a spinning

reserve of at least 5% by 2012 with availability of installedcapacity at 85%.(ii) Full development of hydro potential. Provision of long tenor

finance for these projects.(iii) Choice of fuel for thermal generation to be based on economics

of generation and supply of electricity.(iv) Nuclear Power is an established source of energy to meet the

base load demand. Share of nuclear power in the overallcapacity profile will need to be increased significantly.

(v) Development of National Grid.(vi) Cost of recovery of service from consumers at tariff reflecting

efficient costs to ensure financial viability of the sector.(vii) Provision of support to lifeline consumers (households belowpoverty line having consumption of 30 units per month) in termsof tariffs.

(viii) Availability based tariff (ABT) to be extended to State level forbetter grid discipline through economic signaling.

(ix) Special emphasis on time bound reduction of transmission anddistribution losses.

(x) Measures to promote competition aimed at consumer benefits.(xi) Reliability and quality of power supply to be monitored by State

Electricity Regulatory Commissions.(xii) Exploitation of non-conventional energy sources such as small

hydro, solar, biomass and wind for additional power generationcapacity. Required encouragement through suitable promotionalmeasures.

(xiii) Emphasis on achieving higher efficiency levels of generatingplants through necessary renovation and modernization.

(xiv) Central Government to facilitate the continued development ofnational grid. Central Transmission Utility and StateTransmission Utility to undertake coordinated planning anddevelopment.

(xv) Transmission capacity to have redundancy level and margins asper international standards.

(xvi) Adequate transitional financial support for reforming powerutilities. Encouragement for private sector participation indistribution.

(xvii) The State Regulatory Commissions to put in place independentthird party meter testing arrangement.

(xviii) Support for adoption of IT system for ensuring correct billing toconsumers.

11


12/21

(xix) Speedy implementation of stringent measures against theft ofelectricity.

(xx) Full emphasis on augmentation of R&D base. Mission approachfor identified priorities areas.

(xxi) Demand side management through energy conservation

measures. Labels regarding energy efficiency to be displayedon appliances. Efficient agricultural pumpsets and efficientlighting technologies to be promoted. Appropriate tariff structurefor managing the peak load.

(xxii) Special attention for developing training infrastructure in the fieldof regulation, trading and power market.

(xxiii) For giving boost to renewable and non-conventional energysources, a prescribed percentage of power, as specified byState Regulatory Commissions, to be purchased from suchsources of energy at the earliest.

(xxiv) Necessary regulations and appointing Ombudsman for

redressal of consumers grievances to be in place in six months.

Electricity Tariff Policy

13 The Government of India notified the Electricity Tariff Policy in January,2006. The objectives of the Policy are:

(a) Ensure availability of electricity to consumers at reasonable andcompetitive rates;

(b) Ensure financial viability of the sector and attract investments;(c) Promote transparency, consistency and predictability in regulatory

approaches across jurisdictions and minimize perceptions of regulatoryrisks; and

(d) Promote competition, efficiency in operations and improvement inquality of supply.

13.1 All future requirement of power needs to be procured competitively bydistribution licensees except in cases of expansion of existing projects or wherethere is a State controlled / owned company as an identified developer. Even forPublic Sector projects, tariff of all new generation and transmission projectsneeds to be decided on the basis of competitive bidding after a period of fiveyears.

13.2 It gives the framework for performance based cost of service regulation inrespect of aspects common to generation, transmission as well as distribution.

(i) Rate of return to be notified by the Central Commission for generation andtransmission. The rate of return notified for transmission would be adoptedby State Electricity Regulatory Commissions(SERCs) for distribution alsowith appropriate modification to take care of higher risks involved in thedistribution. For uniformity a common approach to be evolved by theForum of Regulators (FOR) for rate of return in distribution.

12


13/21

(ii) The depreciation rates for generation and transmission to be notified bythe Central Electricity Regulatory Commission(CERC). These rates are tobe adopted by SERCs also for distribution with suitable modification asevolved by the FOR.

(iii) Same rates of depreciation would be applicable both for tariff as well as

accounting purposes.

13.3 It emphasizes the need of keeping duties like electricity duty atreasonable level for making electricity available at reasonable prices.

13.4 Multi-year tariff framework to be adopted for tariff to be determined fromApril 1, 2006.

13.5 Suitable performance norms of operations with incentives and dis-

incentives along with appropriate arrangement for sharing the gains of efficientoperations with the consumers.

13.6 The CERC to notify operating norms for generation and transmission inconsultation with the CEA. Operating norms for distribution to be notified by theSERCs based upon uniform approach as evolved by the FOR.

13.7 It gives essential features of commercial arrangements for harnessingsurplus power available from captive generators.

13.8 Future requirements of energy from non-conventional sources to beprocured as far as possible through competitive bidding process to bring downthe costs.

13.9 In line with the National Electricity Policy (NEP), National Tariffframework for transmission is to be implemented by April 1, 2006 to ensuresharing of the total transmission cost among the users in proportion to theirrespective utilization of the system.

13.10 Private investment in transmission to be invited through competitiveprocess for making transmission asset available according to laid downoperational norms.

13.11 Insistence on making electricity available for 24 hours particularly forthose consumers who are willing to pay tariff which reflects efficient costs inaccordance with the NEP.

13


14/21

13.12 Emphasis on giving subsidy in transparent and targeted manner.

13.13 Cross subsidies for different consumers to be brought within the rangeof + 20% of average of the supply by the end of the year 2010-2011.

13.14 Tariff fixation to ensure sustainable use of ground water resources. Atthe same time there is a stipulation for supporting poor category consumers.

13.15 The cross subsidy surcharge to be computed in a way so that openaccess becomes a reality. The policy gives unambiguous methodology.

14. Recent reforms in the Coal Sector

In India, the annual coal production is about 400 million tonnes as in the

year 2006-07. More than 90% of coal production is non-coking coal. In the non-coking category, more than 80% of coal is consumed by the Indian PowerSector. Dependence of Indian Power Sector on imported coal is rather marginal

about 11 million tonnes in 2005-06 and the likely import during 2006-07 may beabout 16 million tonnes. Coal production has been primarily in the hands of theCentral Government owned coal companies. Recently, it has been decided toallot a number of coal blocks to power plant producers for the purpose of captivecoal mining. Coal blocks have been allotted and are being allotted to generatingcompanies under the Central Government, State Governments generatingcompanies and also to private sector. Almost 20 billion tonnes of coal reserveshave been identified by the Ministry of Coal to be allocated to various power

producing companies. This initiative would have far-reaching positive impact intransforming the present structure of the Indian coal industry and market. Thisdevelopment also has the potential of bringing new technologies, establishingperformance benchmarks, improving productivity not only in the coal minesallotted to power producers, but also among the Government owned coalcompanies. Their performance level has already started showing significantimprovement.

15. Merchant Power Plants

In order to introduce and increase the extent of competition in the

electricity market, Ministry of Power, Government of India has recentlyannounced a scheme of Merchant Power plants.

(i) For quite some time a need has been felt for setting up of MerchantPower Plants to facilitate development of electricity market. Unliketraditional utilities, Merchant Power Plants compete for customers andabsorb the full market risk. There are no guarantees that they willhave a minimum off-take of their output. They must respond to market

14


15/21

needs. Typically the risk of a Merchant Power Plant is carried on thebalance sheet of the promoter. Merchant Power Plants can provide theadditional generating reserves that India needs now and will need inthe future. They are a modern, market-based answer at least in part

to energy challenges faced by the country.

(ii) Merchant Power Plants are a product of the restructuring of theelectricity industry. In the past, utilities owned their own generatingfacilities or contracted with an independent power producers (IPP) tobuy electrical output on a long-term basis. Merchant Power Plants filldifferent niches in the market; some provide steady supplies to apower grid, while others fire up only when demand is highest and meetpeak loads. Merchant power plants operating competitively helpassure that power is produced with efficiency and supplied to locationswhere it is needed most.

(iii) Considering the redundancies that are being provided in the grid topromote open access in transmission and open access in distributionin coming years, it would be reasonable to expect that merchant powerplants each of capacities of 1,000 MW and below could beaccommodated for being able to access transmission availability forwheeling of power to customers which are generally not pre-determined. By the year 2012, it is expected that inter-regionaltransmission capacity in the National Grid would rise to about 37,000MW. Besides, intra-transmission capacities are also being augmentedwith required redundancies to take care of such short-term needs oftransmission of power across the country from one region to anotherand within the region. Merchant Power Plants would be expected tohave dedicated lines upto the nearest regional/national grid system.

(iv) Merchant Power Plants would be provided coal linkage for capacity ofany of the plant upto 1,000 MW. Merchant Power Plants may beprovided coal blocks also as captive mines for capacity of any of thisplant in the range of 500 1000 MW.

16. Rural Electrification Policy

The Government of India notified a comprehensive Rural ElectrificationPolicy in August, 2006. The Policy aims at

(a) Provision of access to electricity to all households by year 2009;

(b) Quality and reliable power supply at reasonable rates;

(c) Minimum lifeline consumption of 1 unit per household per day as amerit good by year 2012.

15


16/21

16.1 It is relevant to mention that 56% of rural households, according toCensus 2001, do not have access to electricity and the number of suchhouseholds is as high as 78 millions. The balance 44% of households, whichhave access, because of inadequacy of power, have to suffer power supplydisruption of as many as 10-16 hours a day. For Indian Power Sector, therefore,

access to electricity for rural India has acquired top-most priority.

16.2 The salient features of the Policy are given below:-

(a) Grid connectivity is the normal way of electrification of villages. Forvillages/ habitations where grid connectivity is not feasible or not costeffective, off-grid solutions based on standalone systems are envisaged.

(b) State Governments are required to prepare and notify rural electrificationplans within six months which will indicate the electrification deliverymechanisms so as to provide access to electricity to all households andelectrification of all villages and hamlets.

(c) Ministry of Power will put in place a coordination mechanism for identifyingvillages to be covered in different schemes.

(d) District Committees are to be set up to ensure involvement of localcommunity in rural electrification. Adequate representation of women inthese Committees is to be ensured.

(e) Least cost option is to be adopted for rural electrification after taking intoaccount full life cycle cost and explicit as well as implicit subsidies.

(f) Emphasis has been given on development of economic load to make thebusiness of rural supply economically viable.

(g) RGGVY already mandates franchisee for the projects financed under the

scheme. System of franchisees is to be introduced in other areas notcovered under RGGVY also in phased manner to ensure revenuesustainability of the rural supply.

(h) Benefit of capital subsidy given to the rural electrification projects is to befully passed on to the consumers.

(i) Annuity based approach has to be adopted for provision of capital subsidyto the decentralized generation system in order to ensure efficientoperation and maintenance.

(j) Programmes for encouraging energy efficient equipments speciallyirrigation pump sets have to be taken up.

(k) The definition of rural area as laid down in Article 243 of the Constitution isbeing adopted for the purpose of the Electricity Act also.

(l) The tariff for sale of electricity by the standalone systems is to be decidedby the competitive market forces. However, the benefit of financialassistance/ capital subsidy received from the Government is to be fullypassed on to the consumers according to the guidelines made by theAppropriate Commission. The Appropriate Electricity Regulatory

16


17/21

Commission shall have right to intervene in case these guidelines are notimplemented.

(m) There is special enabling dispensation for encouraging standalonesystems of upto one MW which are based on cost-effective proventechnologies and use locally available resources.

(n) Policy gives essential features of the franchisee arrangement for localmanagement of rural distribution.

(o) As far as possible the franchisee is to be selected on the basis ofcompetitive bidding.

(p) The franchisee is required to ensure compliance with safety regulationsand also to ensure delivery of services to the consumer as per laid downbenchmarks.

17. Indias response toward Climate Change related issues

17.1 It has been recognized internationally that development and poverty

reduction are urgent and overriding goals. We, in India, have planned, asmentioned earlier, to increase our energy production capacities so as to meetthe projected demand in order to realize our development potential. Rapidexpansion of generation capacity would, obviously, have environmentalramifications. India is fully alive to the needs relating to Climate Change issuesand is trying to address various concerns so as to minimise the adverse impact.Broadly, the approach and the response toward climate change is outlinedbelow:-

17.2. Our energy needs in future are going to grow rapidly. By the year 2012,meeting the demand for electricity will require an installed capacity of more than

2,00,000 MW which is sixty percent more of what we have at present. It isfurther estimated that by 2032, our requirement will be of the order of 800,000MW. We require energy in such large quantity as our economic growth isaccelerating, coverage of households is targetted to grow rapidly and we alsoaim to increase per capita consumption of electricity to 1000 units by year 2012.

17.3. Obviously, meeting such huge energy needs would call for exploitation ofall available energy resources. We have come out with a National ElectricityPolicy that aims to exploit all possible resources to meet the demands ofelectricity in an efficient and cost effective manner. The policy gives highestemphasis to development of clean sources of energy like hydro potential. We

believe that all hydro electric power projects are sources of renewable energy.We have had difficulty with recent trends in many quarters of narrowing thedefinition of renewable sources of energy to exclude large hydro electric powerprojects. Given the challenge of climate change from CO2 emissions it isnecessary to generate an international consensus in favour of the fulldevelopment of the hydro electric power potential of our planet subject to locationspecific environmental concerns being suitably addressed. In many developing

17


18/21

countries the hydro electric power potential provides an immediate commerciallyviable and attractive alternative to the use of fossil fuels.

17.4. We have significant hydro electric power potential in our country and weintend to fully develop it. With our monsoon climate we get all our rainfall in only

a few months of the year. We therefore, have an imperative need for storingwater through dams both large and small. We aim at the optimal utilization of ourriver basins to meet the objectives of flood control, irrigation, drinking water andhydro electric power generation, while taking into account site specificenvironmental concerns. The rehabilitation and resettlement measures forpersons displaced by large projects have now been made sufficiently liberal andattractive.

17.5. We are also developing non-conventional sources of energy andendeavour to exploit nuclear energy.

17.6. Wind has been a big success story in India. On the basis of a positivepolicy framework and enterprise of our people, India has 3600 MW of installedcapacity of wind energy which is probably the fourth largest in the world. Windbased grid connected capacity is growing rapidly.

17.7. We are making efforts at developing and promoting the number of efficientmodern technologies for conversion of biomass into useful energy. There hasbeen considerable technical progress in recent years in this area. This issue isgetting greater attention internationally. Biomass is a renewable source of energyand from the perspective of climate change, we need to promote and maximizethe use of biomass to the extent feasible for provision of energy.

17.8. Solar energy offers enormous potential. There is, however, need forgreater investment in R&D to bring down costs. Reduction in costs would be thekey to the large scale use of solar energy in developing countries like ours. Webelieve that cooperative R&D and location of some of the R&D efforts in a lowcost country like ours would facilitate the process of reduction in costs of solarenergy. We in India being well endowed with access to solar energy areparticularly keen on pursuing and promoting joint efforts in the improvement ofthe technology and lowering of cost of solar energy.

17.9. In India we have been pursuing the development of nuclear energy.Nuclear energy provides a modest 3 per cent of our electricity production. Indiawould like to increase the share of nuclear energy in the coming decades. To theextent that we succeed, there would be a corresponding reduction in the use offossil fuels and consequently of CO2 emission. From the point of view ofconcerns of use of fossil fuel CO2 emissions and climate change, a fresh look atnuclear energy in the international community would seem to be necessary.

18


19/21

17.10. To meet the projected energy demands, which is imperative for ourdevelopmental needs, fossil fuels particularly coal is going to be mainstay forgeneration of electricity in India. India is well endowed with coal reserves which isour main source of energy.

17.11. Continued use of fossil fuels for meeting the energy needs has raisedconcerns about climate change and particularly global warming across the world.We share these concerns. However, it is important to keep the perspective inview. Per capita emission of carbon dioxide are the highest in high incomecountries. According to the published statistics, carbon dioxide emission percapita in India is around 1 tonne against the world average of about 4 tonnes andof about 19 tonnes in case of some developed countries. Development needs ofdeveloping countries have been recognized globally. Such development processwill necessitate consumption of higher levels of energy. While discussing theconcerns on issues like climate change and global warming, it will not beequitous to put together countries with comparatively low per capita emissions

and whose large population are yet to see the fruits of development andrespectable standard of living with countries which are already developed andhave very high per capita income and still have ever growing energyconsumption. Efforts should be to achieve a unit of human welfare with leastpossible energy consumption.

17.12. Energy efficiency is a necessity for a country with our levels of incomeand needs of development. India has made significant progress in this direction.Our energy intensity per unit GDP in Purchasing Power Price terms is now thesame as the average of the OECD countries at 0.18. We are, however, notcomplacent and would like to keep improving and achieving the best that ispossible in the field of energy efficiency. This is a shared challengeinternationally and we all need to work together on creating the technologies aswell as markets for improving energy efficiency and the need for energy withoutcompromising economic growth and human welfare.

17.13. While talking about the reduction of green house gas emissions, Indiastands by the UN Framework Convention Treaty on Climate Change and theKyoto Protocol. This mechanism recognizes the common but differentiatedresponsibilities of the countries in the matter of reduction of green houseemissions. The Convention also recognizes that as developing countries grow,their emissions are bound to increase.

17.14. Given the fluctuation and volatility in oil prices and concentration of mostof the world oil and gas resources in few countries, coal is emerging as onemajor source of energy worldwide from the angle of energy security. Theabundance of coal, its location in large parts of the world makes it a reliablesource of energy, both in developed and developing countries. Coaltransportation and storage systems are modern and clean. It has been possibleto increase the efficiency of coal based electricity generation by using improved

19


20/21

technologies. Super critical power generation technology is being adopted inIndia. Similarly, India is making serious efforts to develop a pilot project of about120 MW based on IGCC technology. The coal found in India has high ashcontent in the range of 30-35% and therefore currently available technologiesneed to be modified and adopted for using this coal.

17.15. Though India has not undertaken legally binding comment to reducegreenhouse gas emissions but we are working with international community inresearch and development of new technologies with the objective of making suchtechnologies technologically sound and economically viable.

17.16. India along with other 16 countries of the world joined CarbonSequestration Leadership Forum (CSLF) in June 2003 and signed the Charter.As Secretary, Ministry of Power, I had the rare privilege of being part of thishistoric initiative and landmark decision. The CSLF is a relatively new butimportant climate change initiative that is focussed on development of improved

cost-effective technologies for the separation and capture of carbon dioxide forits transport and long-term safe storage. The purpose of the CSLF is to makethese technologies broadly available internationally; and to identify and addresswider issues relating to carbon capture and storage. The affirmative action onpart of India to join Carbon Sequestration Leadership Forum (CSLF) emanatesfrom prudence to be at par and take part in development of cost-effectivetechnology development through R&D collaborations. In Indias energy securitycoal based energy generation will continue to play a significant role to addressthe concerns of development and electricity for all. Coal use in sustainablemanner is a greater challenge for us. Carbon capture and storage (CCS) fromfossil fuel combustion is an emerging technology option in this category. A hostof demonstration projects have been launched internationally in research &development (R&D) mode on CO2 sequestration for mitigating global concerns ofclimate change. Seventeen such projects have been recognized by CSLF.India is partnering in the pilot project on Geological CO2 sequestration in basaltrock formations with USA, the project is recognized by CSLF. Development ofCCS technology in Indian context will, however, depend upon this being costeffective.

17.17. India has joined Methane to Markets Partnership as founder Partneralong with Argentina, Australia, Brazil, China, Columbia, Italy, Japan, Mexico,Nigeria, Russia, Ukraine and the U.K. in November 2004. This initiative has beenlaunched by US to serve as a framework for promoting cost effective near termmethane recovery internationally through partnerships among developed anddeveloping countries.

17.18. India has joined along with Canada, EU countries, Japan, China andSouth Korea in International Partnership for a Hydrogen Economy (IPHE) inNovember 2003.

20


21/21

17.19. India is also first Asian country to join the US on the Government SteeringCommittee for the FutureGen initiative. The US and India have signed theFramework Protocol during April 2006 in New Delhi aimed at collaborativefunding for the FutureGen Project aiming to design, build and operate first coal-fired emission-free power plant of 275 MW. The project envisages coal

conversion technology, combined cycle coal gasification process, CO2 captureand storage. Our participation would provide a unique opportunity of sharingexperience and expertise in finding potential technological solutions for historicaldevelopment of zero emission coal based energy generation. While Departmentof Science & Technology, National Thermal Power Corporation as members ofCSLF Policy and Technical Groups are initiating research in carbon capture andstorage along with various other organizations, such projects are often costly anddeveloping countries usually have more pressing needs for their limitedresources. Creation of a Fund for CSLF projects is therefore recommended.

17.20. India has joined the International Thermonuclear Experimental Reactor

(ITER) project as a full partner country in the cooperative international R&D effortat harnessing nuclear fusion. If this effort succeeds and we hope it does, thenman kind would be free of the need for fossil fuel.

17.21. India has also signed the charter of Asia Pacific Partnership for CleanDevelopment & Climate along with US, Australia, China, Japan and Korea forsharing the existing technologies and best practices which have potential forclean development. India is participating in all eight Task Forces of thisPartnership.

**************

Documents

India%27s Strategy Toward Energy Development