Energy in India's Future

Energyin India’s Future: Insights

GOUVERNANCE EUROPÉENNE ET GÉOPOLITIQUE DE L’ÉNERGIE 7

EditedbyJacques LESOURNE andWilliamC.RAMSAY

les études

Energyin India’s Future:Insights

Ifri, 2009

Energyin India’s Future:Insights

GOUVERNANCE EUROPÉENNE ET GÉOPOLITIQUE DE L’ÉNERGIE T OME 7

EditedbyJacques LESOURNE andWilliamC.RAMSAY

les études Ifri, 2009

The InstitutFrançais des Relations Internationales (IFRI)isaresearchcenter and

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Contents

Introduction ...... 7

Afirst look atIndiaand energy ...... 11 Jacques Lesourne andMaïté Jauréguy-Naudin Introduction ...... 11 Elements of India’s growth ...... 12 Prospects forGDP andthe Indianeconomy’s placeinthe world . 16 Energyoutlooks ...... 19 India’s uniqueness:The ingenuitydividend? ...... 27

Energyand environmentalissues: India’senergymodel by2030 ...... 29 Jean-Joseph Boillot andNicolasAutheman Introduction ...... 29 CharacteristicsofIndia’s energysystem ...... 31 Analysis of the different energyscenarios andevaluating needs,2005-2030 ...... 43

Shakti’savatars:WhichenergyforIndia? ...... 59 Joël Ruet andZakariaSiddiqui Introduction ...... 59 The importanceofbeing India: Diversityenlarging the usualenergyframework ...... 60 Sectoralandinternationalissues ...... 95 Identifyingnewtrendsandpotentials ...... 118

Ifri, 2009

6 Energyin India’s Future:Insights

Nuclearpowerin India ...... 141 C.Pierre Zaleski andMichel Cruciani Historicalbackground: The three-stage strategy ...... 141 Main achievements within the first stage ...... 143 Prospects forthe secondandthirdstages ...... 145 Newconsiderations on the nuclearstrategy ...... 146 Turning point:India-USA andIndia-NSG agreements ...... 147 Starting point forfurther development ...... 149 Anewera ...... 151 Economicuncertainties ...... 153 Other uncertainties ...... 155 Technicalcrossroad ...... 156 Conclusion ...... 158

AppendixA – Supplementary dataforChapter2...... 161 Annex1Installedcapacityof power stations Annex2 India’s demandon nature approaching criticallimits Annex3Power shortages forecast 2008–09 Annex4Power generation Annex5Noncommercialenergy

AppendixB – Supplementary dataforChapter3 ...... 169

AppendixC – Glossary,acronymsand abbreviations ...... 178

Table of illustrations ...... 185

Ifri, 2009

Introduction

Inthe decades following India’s independencefrom British rule in 1947,the West’simage of Indiawassumma- rizedin three simple clichés:the world’s largest democracy,an impoverishedcontinent,andeconomicgrowth hamperedby afussybureaucracyandthe caste system,all in the contextof aparticularreligion. These clichés are perhaps one of the reasons thatthe success of India’s green revolution wasrecognizedso late,a revolution thatallowedthe countryto develop its agricultural sector andfeedits population. Sincethe 1990s,the easing of planning constraints have liberatedthe Indianeconomyandallowedit to embark on a more significant path of growth. Newclichés havebegunto replacethe old: Indiawill become asecondChinaand, lagging by10to 20 years,will followthe same trajectory,with its development markedmore byservices andthe use of renewable energy. However,these trendswill not prevent primaryenergy demandfrom exploding.Inits referencescenario,the InternationalEnergyAgencyestimatedthis demandwould reach566 Mtoe in 2006and1280Mtoe in 2030.Indianoffi- cials estimate demandin 2030will reach1700 Mtoe. Inthis context,the IFRI EuropeanGovernanceand GeopoliticsofEnergyProjectdecidedto devote amonograph to the energydimension of the future India.Before presenting the chapters,it is necessaryto summarizethe main questions. Ifri, 2009

8 Energyin India’s Future:Insights

1. Whatwill the average growth rate of the Indian economybeover the long term? Nobodydisagrees thatin certain years it hasreached8%,butone must not confuse an average over severalyears andapeakrate.Fluctuations in the economy,the vagaries andvicissitudes of agriculturalproduc- tion,andsocialresistancecanreduceaverage performance. The differences in prognosis are large between those who assume anaverage growth rate of 5–6%,aconsiderable performance,andthose who think thatitispossible to maintain continuousgrowth of 6%. 2.Going from economicgrowth to primaryenergy demandgrowth raises twoquestions.Howis noncommercial energy(essentiallytraditionalbiomass),whose volume is significant,dealt with? Whatisanappropriate estimation, which,depending on the source,is or is not includedin the estimates? Whatfigure shouldbeusedto calculate the elasticityof energyconsumption comparedto GDP,asthe number wavers between .8 and.5 andmayfall in the next30years? 3. These projections are linkedto the image one might holdof the future of India’s economyandsociety:Some think Indiawill beable to maintain its ruralpopulation,asthe spread of industrialandservices activities will diminish the attractiveness of greaturbancenters.Others believethatin India, ashashappenedin everyother country,economic growth will becoupledwith migrations from the countryside to cities. 4. Interms of energysources,twouncertainties remain: First,Indiahasastrong desire to vastlydevelop civil nuclearenergy.Italreadyhassolidtechnologicalexperiencein this fieldandrecentlysignedaciviliannuclearcooperation agreement with the UnitedStates,whichgives Indiaaccess to necessarytechnologies andresources from the UnitedStates andpaves the wayforexchanges with RussiaandFranceas well. However,it is not certain thatIndiawill beable to financeprojects andcarrythem outassoon asitwouldlike.

Second, Indiais home to numerousrenewable energy initiatives.Some see the countryasalaboratoryon this issue. Ifri, 2009

Introduction 9

Butwhatrole will this type of energyplayin India’s future energylandscape? 5. Lastly,it is important to remember thatIndiais one of the countries thathavethe furthest to go in improving its energyefficiency.Its losses in electricitydistribution are major andcouldno doubtbereducedatamoderate cost. Variousaspects of the seriousenergyproblems are studied throughoutthis monograph. The authors havewritten freely on these matters withoutattempting to reconcile their different viewpoints. The first chapter,byMaïté Jaureguy-Naudin andJacques Lesourne,presents anoverviewof India’s present andfuture energysystem.The authorsfollowaprudent butrealisticview of India’s future. The secondchapter,byJean-Joseph Boillot,aFrenchexpert on Indiawho haspublishedseveralbooks andarticles on this subject,andNicolasAutheman,researchfellow,describes in greater detail the specificsofIndia’s economyandthe actors who are nowpresent in the energysector. The thirdchapter,byJoël Ruet andZakariaSiddiqui,who liveinIndia, presents aviewthatismore inclusiveofrealities on the groundin India.Itisinteresting to compare the areas in whichthe secondandthirdchapters share opinions and those in whichdisagreements appear. The finalchapter,byC.Pierre Zaleski andMichel Cruciani, is dedicatedto India’s nuclearprojects andexperiences after the signing of the Indo-Americannucleartreaty. Indiahaseverychanceofbecoming the most populous countryin the worldin severaldecades,butwhile it forecasts tremendousgrowth,Indiais still apoor countrywhose economyis not yet asdevelopedasChina’s. Inpublishing this monograph,the EuropeanGovernance andGeopoliticsofEnergyProjecthopes to help its readers develop informedopinions on this matter. Ifri, 2009

Afirst look atIndiaand energy

JacquesLesourneandMaïté Jauréguy-Naudin*

Introduction This first article in this monograph on Indiaandenergy aims to identifythe main factors thatshouldbekept in mind when analyzing India’s evolution andits energydimension. India, the biggest andmost complexdemocracyin the world, hasbegunits transformation towardeconomicdevel- opment,yet the socialandeconomicsetting is not homoge- neous. Socialinequalities are striking,andmanyquestion India’s abilityto keep growing atthe level forwhichsome Indians hope. The journal Futuribles presentedthe different evolutions thatIndiacouldgo through over the course of the 21st century in three of its issues. 1 Apreviousissueexaminedacombina- tion of three scenarios,with one “virtuous” one dominating, whichassumedpositivesynergyandcompromises thatare beneficialtothe whole country. 2 Basedon acriticalanalysis of

*JacquesLesourne ischairmanofthe ScientificCommittee of the Ifrienergyprogramand MaïtéJauréguy-Naudin isresearchfellowand projectmanagerof the Ifrienergyprogram.

1. Futuribles ,No. 338,No. 339,and No. 323. 2.Jean-JosephBoillot,“Lesfuturs possiblesde l’économie indienne,” Futuribles No. 323, October2006. Ifri, 2009

12 Energyin India’s Future:Insights

projections forIndiain 2025,Jean-Joseph Boillot believes that the countryis atthe start of amajor transformation which beganaround10years ago.Yet given the inertiathatcould accompanyit,Indiain 2025will of course beamajor player in the worldeconomybutwill not yet beaneconomicsuperpower. This article will address elements of India’s growth,GDP projections,andoutlooks forprimaryenergyconsumption,and will concludewith severalremarks on characteristicsuniqueto India.These themes will berevisitedin subsequent chapters.

Elements of India’sgrowth

Remarkable results,but lingeringquestions Sincethe beginning of the 1990s,Indiahasdemonstrated remarkable economicresults.Its performancehaslargelybeen supportedbythe servicesector.Information technology, communications,andbanks havebeen the most important parts of it. Indiathushasbecome one of the largest exporters of business services. Economicliberalization allowedthis to occur. For a countrythatwasatfirst veryprotectionist andhighlyregu- latedin terms of centralizedadministration,this liberalization went handin handwith adecrease in customs tariffs.The countryis nowopen to foreign capitalandforeign direct investment andis growing even if it still playsalimitedrole in the Indianeconomy. Inaddition,newIndianregulations releasedassets belonging to Indiancompanies.The Tatatakeover of the steel firm Corus,astake in the steel companyArcelor bythe Mittal family,andthe recent takeover of SIFCOR (Societyof IndustrialandFinancialCourcelles) byBharatForge are only part of Indianforeign investments.These investments worry Western heavy industries,asmuchover the amount of money involvedasbythe targets chosen. This dynamicgives credencetoanimage of Indiaon a path of miraculousgrowth. Indiaattracts the attention of the whole world, whichhopes to see from this surge the emer- Ifri, 2009

Afirst look atIndiaandenergy 13

genceofarising market andapossibilityforIndiato wrest economicpower from Chinain the mediumterm. However,the challenges Indiafaces are commensurate with its size.

The demographicpotential

Awindowof opportunity While the 20th centurysawthe return of Chinato the worldstage,andif some people think its demographic dynamiccouldlead to anAfricaneraatthe endof the 21st century,will Indiaknowhowto make gooduse of its demographicwindowof opportunity? The decrease in India’s birth rate (currentlyat2.8) is going to lead to aslowing in the annualpopulation growth,from 1.7% atthe beginning of the centuryto almost zero by2030. This evolution brings aboutdirecteffects in terms of the amount of available resources,butalso indirecteffects through behavior changes,either concerning levels of consumption or investment. This periodbeganinIndiaatthe beginning of the 1970sandshouldcontinueuntil 2035. Incomparison with China, where the turnaroundshouldoccurnear2015,India’s windowof opportunityis spread outover time because India, in contrast to China, hasnot takenbrutalmeasures in reducing its birth rate.Indiashouldthusnot experienceasbig acrisis over population aging asChina. IndianandChinese population curves will cross in 2030and it hasbeen predictedthatIndiawill take ademographicadvan- tage over Chinaby10%. Itisimportant,however,to putthe perception of India’s demographicadvantage into perspective. Anacceleration of India’s growth andthe modernization of its societyor areversalinChina’s population control policywould beenough to close this gap. Indiaaswell asChinamust profit from their demographicpotentialbetween nowand2050in order to approachthe standardof living in developedcountries.

This evolution in population will however onlybebenefi- cialifeconomicgrowth is accompaniedbyjobcreation. Ifri, 2009

14 Energyin India’s Future:Insights

Table 1. GDPand employmentdistribution bysector Employment Contribution to Employment Contribution to bySector,GDP bySector,bySector,GDP bySector, 1999 2002 2003–2004*2006–2007 (%) (%) (%) (%) Agriculture 57 22 58 17.5 Industry18 241827.9 Services 26512454.6 *OECD EconomicSurveysIndia, Volume 2007/14,October 2007.

Originalsectoraldistribution India’s historyis characterizedbystrong agricultural development,whichexplains today’s dominanceofarural Indiaandthe secondaryrole thaturbanization hashad up until now,contraryto the development paths thatthe West followed. 3 Indiaon the whole succeededwith its green revolution. Inthe 50years thatfollowedindependence,the rural population,while poor,forthe most part escapedfamine. While the agriculturalsector wasable,until the beginning of the 1990s,to absorbthe localworkforce(despite strong demo- graphicpressures),getting the large populations thatlivein ruralareasoutofpovertyis amajor challenge forthe Indiaof tomorrow.Three-fourths of unemployedworkers nowlivein ruralareas. Agriculture’scontribution to the GDP is lower than 20%andrepresents more thanhalf of employment. Economic performancethuspartlyremains dependent on agricultural production andclimatichazards,with monsoons topping the list. Eightypercent of nonagriculturalemployment comes from familyandindividualbusinesses,village or cooperative companies,andare hardlyproductive.4 Industryonlyrepre- sents 18% of the activepopulation andthe vast workforce does not findsufficient industrialsupport to make upfor the lackofemployment in the agriculturalsector.

3.Christophe Guilmoto,“L’Indeetson Milliard.”Démographie en début de siècle.Série Santé

de lareproduction,féconditéetdéveloppement.ResearchDocumentNo. 8,IRD. 4. SophieChauvin,FrançoiseLemoine,“L’Economie Indienne:changements structurelset perspectivesàlongterme,”CEPII No. 2005-04April. Ifri, 2009

Afirst look atIndiaandenergy 15

Onthe other hand, the servicesector accounts forclose to half of India’s GDP,while it onlyrepresents aquarter of the population. This is adistinctiveness of India’s development, sinceapart of the serviceeconomyis quite advanced comparedto the other sectors andis rather characteristicof anintermediate country.However,in this areaof modern services,Indiais particularlythreatenedbyshortages of qualified labor,whichitistodaystruggling to train andattract. The education system fails attwolevels:atthe top of the pyramid, where the number of those with ahigher education is insufficient,andatthe lower part,with the elimination of illiteracy within the population. Manyprivate schools are todaybeing createdto attempt to respondto this shortage of engineers, teachers andresearchers.

Sourcesof pressure The first consequenceofthis distribution between sectors is thatalarge part of the population does not benefit from economicadvancements andinequalities increase, whichisapotentialsourceofmajor sociologicalupheavals. By2030,the number of workers in the agriculturalsector shouldsettle ataround191 million. Agriculture shouldnot represent more than10%ofthe GDP while abit more than 70%ofthe population is todayconcentratedin ruralareas. Urbanzones shouldholdaround40%ofthe totalpopulation by2030, 5 whichrepresents alower rate of urbanization than in China. The economictake-off couldlead to major migratoryflows andtheir impactonurbandevelopment wouldbeconsider- able,while the migratorypotentialtourbanareashasupuntil nownot takenplace. The issueofemployment andthe survivalofthese newurbanmasses pose aformidable challenge,andis all the more crucialfor ademocracy.The Indian government,byimplementing aNationalRuralEmployment Programin2005,hopes to curbandto spread outpopulation growth in ahomogeneousmanner,butitiswithoutdoubt

5. United NationsPopulationFund (UNFPA), Stateofthe World Population2007 –Unleashing the PotentialofUrbanGrowth . Ifri, 2009

16 Energyin India’s Future:Insights

negating the verysources of this increase sincenaturalgrowth remains the main factor in India’s urbangrowth.

Prospects forGDPand the Indianeconomy’splaceinthe world

Possible evolutionsin GDP India’s growth hasbeen impededbydelaysindeveloping infrastructures,andbythe persistenceofeducation andhealth problems.However,according to severalanalyses, 6 these defi- ciencies couldbegin to subsidein2020.Projections examined byJean-Joseph Boillot assume anannualgrowth rate of between 4.5% and8.5% by2025. These differences are explainedbythe distinctassumptions regarding factors of production—activepopulation andinvestment rate—and total-factor productivity(TFP),whichcanaccount forupto 60%economicgrowth. From breaking downthese different factors,it becomes clearthatthe annualgrowth rate in 2025 will probablybeclose to the lower predictedrange,or 4.5% to 5%,whichcorrespondstoanincrease in per capitaGDP of 3% to 3.5%.7 Toward2030,the IndianeconomywouldbeequaltoFrance or Germanytoday,butwhen measuredin terms of purchasing power parityit couldbethe thirdlargest globaleconomy(it is alreadythe fourth). Inaddition,per capitaGDP wouldremain well belowthe current levels of developedcountries.These projections thussuggest the emergenceofaneconomythatmust bedealt with,butwhichisstill farfrom being the economy superpower thatissometimes portrayed. Itismore atthe level of niche sectors thatwecanexpect remarkable performances from Indiain the mediumterm,in areassuchasbusiness services,informationtechnology,bio- informatics,andpharmaceuticals. From the conclusions of these diverse studies,it becomes clearthatwhen dealing with India, one often tendstoconfuse

6.Studiesbythe IMF, the World Bank,GoldmanSachs(BRIC study)and the workofCEPII. 7.Usinganannualpopulationgrowthrateof1.5%. Ifri, 2009

Afirst look atIndiaandenergy 17

the part forthe whole.The Indianeconomyis certainly emerging from atraditionalperiodandone canexpectan assertion of its economyin the next50years.Nonetheless,the interpretations of forecasts for2025are often open to criti- cismduetoanexcess of optimism,considering the current situation thatischaracterizedbyanoverall lowlevel of development,significant gaps in income andalowper capitaGDP, with manypeople living belowthe povertythreshold.From the analysis of these scenarios,it is hardto imagine thatIndia is enjoying development thatisasastonishing asChina’s.The economiccatching upisexpectedto bemore gradual. Nevertheless,this per capitagrowth thatissupportedbutnot explosiveisprobablyeasier to manage in acountrythatis alreadydemocraticandthatdoes not raise the same concerns asgrowth in Chinadoes. After 2025,the decrease in population growth will change the relationship between GDP growth andper capitaGDP growth sincepopulation growth shouldbe close to zero.While it seems veryunlikelythattheywill exceed5% growth over the long term,it is probable thatthe per capitaGDP growth rate will increase.

The sustainability of Indiangrowth Other thanthe economicchallenges thatIndiamust cope with,other factors couldimpedeIndia’s rise to power.

Hindrancestopoliticalstability Eighty-fivepercent of the population is Hinduandis highlyheterogeneousinterms of practices andbeliefs.Islam is the secondbiggest religiouscommunity.Castes and different languages add to the population’sheterogeneity. Religiousrivalries couldhaveanimpactonmanaging the population,aseachcommunitystrives foranumericaladvan- tage over another.Migrant influxes,notablycoming from Bangladesh,couldchange the religiousbalanceinthe northeastern states.Pakistan’spoliticalevolution couldresult in an increase in the Muslim population in the west.8 Numerous

8. Alain Lamballe,“Lesfreinsàl’essorde l’Inde,” Futuribles No. 339,March2008. Ifri, 2009

18 Energyin India’s Future:Insights

pockets of Maoist,nationalist andautonomist insurrections canbeaddedto the religiousandcommunitytensions that couldbecome greatlystrained.Indiawill thushavetocommit itself to dealing with these groups,whichare factors of insta- bility.Economicdevelopment will also dependon political changes among their neighbors in Pakistan,Nepal,Bangladesh andChina.

Lackofinfrastructure Nearlyhalf of Indianhouseholdsstill donot haveaccess to electricity.Ninetypercent of roadsare of twolanes andin poor repair.Airports,ports andrailroad capacities are insufficient. According to the AsianDevelopment Bank (ADB),India will havetoinvest 1,000 billion euros over 10years in its infrastructure.Inaddition,the ADB estimates thatthese colossal investments are necessaryforIndia’s growth to continue. To create the most favorable climate forpublic-private partnerships thatallowsupplementaryfinancialresources to bemobi- lized, one must not forget the factthatthe necessary investments are forthe most part long-term,whichexposes companies to high risk. Thus,the state cannot leavethis to private capitalalone.

Access toenergyand water The population’saccess to water andenergyis vitalto social,environmentalandeconomicdevelopment. Water management in anevolving environment is aparticularly complexchallenge.Urbanization andindustrialization thatis developing quite rapidlyin certain states increases the pressure on limitedresources.Inaddition,water resources are threatenedbyclimate change,whichcouldhit Indiaparticu- larlyhard.This resourcemaythusbecome severelydegraded. The energydeficit is becoming more andmore pronounced, while development inevitablygoes handin handwith an increase in energyconsumption.

Lowered expectations

From this first part it is evident thatinorder to take full advantage of its numerousandremarkable assets,on one hand Ifri, 2009

Afirst look atIndiaandenergy 19

Indiawill havetocomplete its demographictransition,andon the other it will havetobecertain thatits economicgrowth creates jobs. Inaddition,the muchneededinvestments, reforms thatmust becarriedoutorundertaken,andurgent needto improvethe education system remain considerable obstacles to strong andmaintainable economicgrowth by 2025. Ifthe current risks of politicalinstabilityare addedto this,the strong enthusiasm thatportraysIndiaasaneconomic superpower seems to bequite optimistic. Itisfor this reason thatitseems more appropriate to settle on the generalconclusion takenfrom the scenarios presented andstudiedin the Futuribles journal,whichare more conser- vativeintheir viewof Indiain 2025. How,under these circum- stances,dothese scenarios become linkedto energysupply andconsumption problems given thatenergygrowth should besostrong?

Energyoutlooks Indiais the world’s fifth largest primaryenergyconsumer (537 Mtoe in 2005). Economicdevelopment remains the main determinant of energyconsumption; given the performance recordedover the last fewyears,asignificant increase in energydemandis expected.Energyneedsare thusamajor issuewith implications asmuchonthe domesticfront ason the internationalone,where India’s energydemandhasconse- quences forthe geopoliticsofsupplyandmakescooperation with Indiavitalinthe fight against globalclimate change.

India’senergycharacteristics Relativetoits population size,energydemandin India remains low:India’s population representedone-sixth of the wordpopulation and5% of globalconsumption (including traditionalforms of noncommercialenergysources). Thatis to saythere is atremendouspotentialfor increasing demand in the coming years.From the point of viewof energysystems, it is interesting to followthe evolution of energyintensity, whichmeasures the amount of energyneededto produceone Ifri, 2009

20 Energyin India’s Future:Insights

unit of GDP,andenergyelasticity,the ratio of the growth rate of primaryenergydemandandthe GDP.These elements dependon the level of development in the different regions of the country,climate conditions,andavailable domesticenergy sources in addition to underlying factors,suchaschanges in the amount of noncommercialenergysources in the energy mix,energyefficiency,forwhichthere is alarge potentialfor improvement,andthe distribution between sectors,in which services andheavy industrycandevelop. India’s energyintensity,at0.69, 9 is noticeablyless than thatofChinaat0.78,andmuchhigher thanthatofthe EuropeanUnion at0.13. This is the result of lowenergyeffi- ciency,highlysubsidizedenergyprices thatdonot reflectthe externalcosts of their use andenergyintensiveindustries (Indiansteel is developing atasustainedrate andranks seventh in the world.For reference,energyconsumption per ton of steel asafunction of process mixis higher in India thaninChina, andis well higher thaninthe European Union10 ). InIndia, the evolution of the residentialsector, whichuses alot of noncommercialenergysources (wood, vegetable andanimalwaste),will havemajor effects on energy intensity.Among the factors thatwill lead to decreases in energyintensityin India, anincrease in the priceofcommer- cialenergyshouldhelp improveenergyproductivity. Asfor energyelasticity,anessentialmeasurement for linking economicgrowth to energyconsumption,it washigh foraquite some time buthasbeen steadilydecreasing since the middle of the 1970s. Calculatedforthe period1990–2005, it sits ataround0.58,whichrepresents anotable decrease. This figure reflects both the major placethatthe servicesector nowholdsinthe Indianeconomyandgains in energyefficiency.Itisnot,however,comparable to industrializedcountries.Inthese countries it begantodecrease when the service sector became the most important part of the economy’s

9. Energyintensity in 2005measured in tonsof oilequivalentperthousand dollars using figuresfrom the World EnergyOutlook 2007 and the World EconomicOutlook Database,April

2008. 10. EnergyEfficiencyPoliciesAround the World:Reviewand Evaluation ,World EnergyCouncil, January 2008. Ifri, 2009

Afirst look atIndiaandenergy 21

structure andheavy industrycame to anend.One canexpect anincrease in India’s energyelasticityin the mediumterm,or atleast acertain volatility,whichwouldbemore characteristic of adeveloping economy,despite the progress in energyeffi- ciencythatstill must bemade. Amajor issuefor Indiais to control,or even reduce,its energyconsumption withoutinterfering with its economic development. The studyof India’s energycharacteristics assumes economicgrowth. Aswasthe case in the preceding paragraphs,this studyuses agrowth rate of 5% in 2030,well belowthe officialprojections of 8%.

Possible evolutionsin India’senergymixby2030

Scenariospresented bythe World EnergyOutlook 2007 The scenarios presentedin the WEO 2007,the main refer- encework forthis subject,usedanaverage annualGDP growth rate of 6.3% in the ReferenceScenario andAlternative PolicyScenario,and7.8% in the High Growth Scenario forthe period2005–2030. Inits ReferenceScenario,the WEO estimates thattotal primaryenergydemandwill go from 537 Mtoe in 2005to 1299 Mtoe in 2030,or anannualincrease of 3.6%,whichis

Table 2.Referencescenario of the World EnergyOutlook 2007 2005200520302030 RelativeShare Absolute RelativeShare Absolute Value (%) Value(Mtoe) (%) (Mtoe) Coal39 .2 20848 .7 620 Oil 24 .2 12925 .7 328 Gas5.4 297.7 93 Nuclear0.9 52.5 33 Hydropower 1.7 91.7 22 Biomass*29 .2 158 15.7 194 Other Renewable Energies 0.210.7 9 Total100.2537 99.9 1299 *Including traditionalforms of noncommercialenergy. Ifri, 2009

22 Energyin India’s Future:Insights

comparable to the average growth rate of 3.5% per year recordedbetween 1990and2005. The WEO’s Alternative PolicyScenario,whichassumes the implementation of public policies andmeasures aimedatcontrolling energyconsumption,estimates (using the same numbers forGDP growth as before) thattotalprimaryenergydemandwill reach1082 Mtoe in 2030.

Alikelyinterpretation Keeping in mindthe different available estimates for diverse energysources andthis time using anaverage annual economicgrowth rate of 5% over the period2005to2030,we arriveatadeviation of the WEO’s ReferenceScenario (Table 3),with primaryenergyconsumption nearing 1080 Mtoe. Wejudge the ReferenceScenario given bythe WEO 2007 to most likelybetoo optimistic.Ourconclusions bring us closer the to AlternativePolicyScenario,withoutthe energy savings predictedbythis scenario necessarilyoccurring. Using ourhypotheses,suchanAlternativePolicyScenario couldlead to 100 Mtoe of energysavings.Thus,asabasis for discussion,it seems reasonable to placeIndia’s totalprimary energyconsumption in 2030between 900 and1000 Mtoe.

Table 3.Primary energymix(annualgrowthrate:5%) 2005203020302030 Absolute ReferenceAlternativeAssuming 5% ValueScenario,PolicyScenario,Growth (Mtoe) WEO (Mtoe) WEO (Mtoe) (Mtoe) Coal208620 411 497.5 Oil 129328272270 .5 Gas29938973.7 Nuclear533 47 24.7 Hydropower 922 3219.3 Biomass*158 194 211 185.8 Other Renewables 19219.2

Total537 1299 10821080.2 *Including traditionalforms of noncommercialenergysources. Ifri, 2009

Afirst look atIndiaandenergy 23

AnIndianviewpoint Byfavoring the quantitativeaspects over qualitativeones, available Indianstudies generallytendto largelyoverestimate needs. AstudybyJoël Ruet11 thusshowsthatthe estimates of the Planning Commission of the investment needsinthe electricitysector wouldbeclearlylower byintegrating more ambitiousperformanceestimates andbyaiming forimproved operation atexisting power stations.These works are,however, usefulfor clearing the wayformajor trends. For instance,the NationalEnergyMapfor India: TechnologyVision 2030 12 gives forfinalcommercialenergyconsumption arange of between 1503Mtoe forascenario with anemphasis on energyefficiency,nuclearandrenewable energydevelopment (8% annualGDP growth rate),and3351 Mtoe forascenario of strong growth (10%annualGDP growth rate). Alower growth estimate (6.7% GDP growth)bringsfinalenergy consumption in 2030to 1579 Mtoe.The WEO’s Reference Scenario 2007estimates finalenergyconsumption in 2030to beat804Mtoe. While being optimisticaboutIndia’s development,these estimates are clearlysubjecttodebate.Recall,moreover,that the estimates of energyconsumption madebyexperts during the 1973 oil crisis were highlyoverestimated.

Adiversified energymix,but withfossil fuelsdominating The different works previouslycitedconcuronthe conclusions regarding the dominanceofconventionalenergies,oil, coal,andgasinthe future energymix,even the most opti- misticconjectures.Theyagree on possible savings in terms of coalandto alesser extent oil,notablyin electricityproduction forindustry,where moving towardother energysources is quite conceivable. Access to electricityis atthe heart of the energyissues thatIndiamust cope with. Some 44% of the population does

11.“Lesecteur électriqueenInde:réforme libérale oupersistanced’une forme de dévelop-

pementàl’indienne,”Joël Ruet,CERNA. 12. NationalEnergyMapforIndia: TechnologyVision2030,TERIand Officeofthe Principal ScientificAdviser,Governmentof India. Ifri, 2009

24 Energyin India’s Future:Insights

not haveaccess to electricity.Seventy-twopercent of the population lives in ruralareasthatmainlyrelyon noncommercial, traditionalenergysources,whichare inefficient,with health andenvironmentalconsequences.Noncommercialenergyis still usedbyclose to 660million people.The latest census (2001) estimates its percentage in the energymixto beat around32%. The Indiangovernment hasset the ambitious goalofconnecting all villages between nowand2010,which assumes massiveinvestments. In2005,installedelectriccapacityin Indiawasat115 GW.Itshoulddouble by2025. Loss rates atclose to 40%, electricityproduction that,during peakperiods,satisfies at best 89% of average demand(over the last 7years)13 and pricing policies thatdonot reflectsupplycosts all demonstrate thatthere are issues atseverallevels,including the networks,power plant operations andcommercialpolicy.The ElectricityActof2003startedthe creation of avitalregula- toryframework,butthe constraints thathavetobeovercome are still massive,the first of whichisthe lackofacompeti- tivemarket. Raising the neededcapitaltodevelop new production capabilities canonlybefulfilledwith the help of foreign capital. Yet market conditions are not attractive enough to dothis. For cost andavailabilityreasons,coalremains the dominant fuel in electricityproduction.Itiscurrentlyresponsible formore thantwo-thirdsofits production. Nonetheless,the poor qualityof India’s available coalandthe geographicloca- tion of its principalcoalbasins (in the east of the country, while demandis in the north andsouthwest) lead to an increasedgrowth in imports.The WEO estimates thatthe amount of coalimports in the primaryenergymixwill go from 12%in2005to28% in 2030.This large increase assumes however the construction of adequate port capacities.Coalisthe main adjustment variable between the two scenarios proposedbythe InternationalEnergyAgency. Thermalpower stations basedon coalthatare currentlyin

13.“The peakshortage (in MW available)is11.3%ofpeakdemand.” GastoPowerIndia, April 2006,IEA. Ifri, 2009

Afirst look atIndiaandenergy 25

use in Indiaperform well belowthose in OECD countries in terms of thermalefficiency(27–30%versus37% on average). Itisofcourse imaginable thatthe globalcontextofthe fight against climate change andthe expectedgains in terms of energyefficiencywill allowforthe widespread use of super- criticalcycles (boiler andturbine) thatwouldconsiderably increase electricityproduction efficiency(upto45%) and wouldthusallowforthe management of coalconsumption andthe CO2 emissions thatgoalong with it. The amount of gasinIndia’s energymixis expectedto increase andit playsagrowing role in electricityproduction (it couldreach20%in2025,versus10%today 14). Itispartly amatter of facilitating production andexploration of Indian reserves,the majorityof whichare locatedoffshore. Exploitation of these basins is dependent on technological constraints butalso investments.Inaddition,uncertainties weighing on future gassupplies (for whichitisnecessaryto consider the cost of LNG andthe development of transmission anddistribution lines) hurt long-term commitments.The coal, gasandelectricitysectors are veryinterdependent andonly reforms undertakeninacoordinatedmanner will allowthem to puttheir full potentialtouse.

While Indiahasvast waterpower resources,the amount of hydropower in the primaryenergymixwent from 40%in 1971 to 14% in 2005. Manyprojects are being considered, but India’s federalsystem canmake the completion of major dams difficult given localopposition,whichdoes not fail to make itself heard.

Recent advancements in the bilateralIndo-U.S.agreement on supplying civiliannuclearenergycouldallowIndiato develop its installednuclearcapacityfaster thanplanned. However,with 3.6 GW of installedpower in 2006,the ambi- tiousobjectiveofthe Indiangovernment for40GW of installedpower by2030(20 GW in 2020)seems difficult to reach. The WEO AlternativePolicyScenario’sestimate of

14.GastoPowerIndia, DagmarGraczyk,IEA,April 2006. Ifri, 2009

26 Energyin India’s Future:Insights

24GW in 2030(versus17GW in the ReferenceScenario) seems more realistic. Industrializedcountries are going through anincrease in energyintensityin the transport sector where the most flex- ible andenergyintensivetransportation modes are developing the fastest. One canexpectasimilarevolution in Indiawhile the totalnumber of individualvehicles is still low,even if it hassignificantlyincreasedin big cities.However,the increase in road trafficin the coming decades canbemitigatedby increases in oil prices andthe state of road infrastructure. Renewable energies cancertainlydoalot to improvethe standardof living forpopulations farfrom the network. They shouldplayarole in ruralelectrification. Renewable energies canalso beconsideredforcentralizedenergyproduction. Today,Indiahasthe fourth-largest installedwindpower capacityin the world(6 GW in 2006). Vast biomass resources, whichtodayare barelyor poorlyexploited, couldtomorrow providegas,electricityandindustrialheat. Solarpower stations,less costlythanphotovoltaics,couldbesignificant in supplying cities.Butinfine,the development of renewable energies will onlybesustainable if theyrespectsocialand economicnorms. India, likeChina, will beaffectedbyincreases in energy prices,asthe region is particularlypoor in energyresources andis not veryenergyefficient. Energypricepolicies in developing countries haveset major subsidies in order to provide the largest number of people possible with energy,whichis viewedasapublicgood.Unfortunately,these subsidies lead to ashortage in investments,donot encourage energyefficiency, hurt the development of renewable energies atthe locallevel andhavenot preventedanincrease in the number of people withoutaccess to energy.Itthusseems to benecessaryto consider alternativeapproaches thatwouldallowgovernment to honor its socialresponsibilities while creating aclimate thatismore favorable to publicandprivate investments.The current contextofvolatilityin hydrocarbon prices makesitall the more difficult to maintain atenable policyof price subsidies. Ifri, 2009

Afirst look atIndiaandenergy 27

India’suniqueness:The ingenuity dividend?

Numerousobservers are betting on India’s abilityto skip over the steps thatindustrializedcountries had to take (“leapfrogging”),andcite the strong growth of the service sector asproof of this.Itispossible to imagine thatIndiawill avoidthe path takenbyindustrializedcountries byfreeing itself from aneconomythatisheavilydependent on hydrocarbons.Indiacouldaccomplish this,forexample,bygoing straight from verytraditionalenergysources to the most advancedtechnologies. Butthese technologyjumps require large financialinvest- ments andaskilledworkforce. Inaddition,the needto create unskilledjobstoabsorbthe demographicinflux from the rural population will instead lead to the development of heavy industryactivities.Itremains truethatalarge increase in GDP will lead to the modernization of facilities thatwill improve energyintensity,particularlyin industrybutalso in households. Withoutpredicting India’s capabilityto putanewenergy system in place,distribute anduse better technologies thatare alreadyavailable (supercriticalcoalpower plants,wind)as well asfacilitating the development anddeployment of technologies thatare less mature (photovoltaics,integratedgasification combinedcycle),these are within the realm of possibility.Inthis respect,the work of the WorldBusiness Council forSustainable Development15 is full of lessons on the politicalmeasures neededto beputinplacetoencourage market access forlowCO2 emitting andenergyintensivetech- nologies.This wouldallow,byconsiderablylowering energy intensity,forthe decoupling of economicgrowth from energy needs. Nonetheless,beyondthe improvement in energyintensity,Indiashouldalso work to decrease its economy’s carbon footprint. Astudybythe WorldBank estimates thatthe cost of aneconomicstrategythatislowin carbon is of course more costlythanthe classic“fossil fuel based”model,butthatit wouldnot hurt growth.

15. PoweringSustainable Solutions:Policiesand Measures ,World Business Council for Sustainable Development. Ifri, 2009

28 Energyin India’s Future:Insights

More thanother countries,Indiais characterizedbya dichotomybetween large cities where there is apush fortech- nologies usedin other parts of the world(nuclear,supercrit- icalpower plants),andthe ruralregions,whose evolution is debatedbyexperts assome see anincrease in its population while others predictamigration towardthe cities.Itisinthis part,the most interesting,thatIndiacanmake anappealfor renewable energies.Indiacouldthusintroduceelements other thanhydropower andnuclearenergies into its energysystem, in turn becoming aglobalpioneer. Indiatherefore hasthe opportunityto embark on anorig- inalpath byinventing anewenergysystem. This opportunity, uniquetothis time,dependsoninvestments thatitwill have to bereadyto agree to,butalso on the capabilityof industrializedcountries to work with India, aswith China, in the fight against climate change.

Ifri, 2009

Energyand environmentalissues: India’senergymodel by2030

Jean-Joseph Boillot andNicolasAutheman*

“The earth is not agiftfrom ourparents,it is on loanfrom ourchildren.” “All Europeans thatcome to Indiaacquire patience if theydon’t haveitandlose it if theydo.” –Indianproverbs

Introduction Inafamousbook publishedin 19911 ,whichremains the referencefor economicpublicpolicies changes to come,Jyoti andKirit Parikh addressedenergypolicies with the following forewarning:“Energyproblems in large,highlypopulated countries with lowper capitaincomes suchasIndiaare intrin- sicallydifferent from those in wealthycountries.” With these words,the authors were referring to aneconomycharacterized

*Jean-JosephBoillotisaneconomist withthe Euro-IndiaEconomicBusiness Groupand NicolasAuthemanisaconsultantwiththe EuropeanCompanyforStrategicIntelligence(CEIS)

and agraduateofthe JawaharlalNehru University,NewDelhi. 1. The IndianEconomy,Problemsand Prospects,edited byBimalJalan,Penguin Books,1991, NewDelhi. Ifri, 2009

30 Energyin India’s Future:Insights

byverylowper capitaincome,energyconsumption and output. Theyalso evokeasituation of elevatedenergy dependency,notablyon oil. Despite the mitigation of this through aconsistentlyimproving andplannedincrease in production capabilities sinceimplementation of the first five yearplan,oil dependencyhascompromisedthe country’s energyindependence. Certainlythese energyissues were andare linkedto geographic, demographicandeven sometimes culturalparti- cularities thatinturn influenceits approachtothe forms of energyproduction used, not to mention the existenceof problematictransmission anddistribution networks,which further reflectthe difficulties in modern state building 60years after independence. These particularities are common to nuclearenergyaswell. Inthe explanations given bycertain Indianeconomists surrounding India’s development process,there is the ideaof aproduction andespeciallyconsumption model thatis different from thatfollowedby“wealthycountries.” This “endogenous” model is,however,confrontedbyrealityin terms of planning capabilities (the systematicdelayin reaching objectives) andthe management of political,cultural andenvironmentalissues.The finalobjectiveremains reducing the cost of energyandensuring the country’s energy autonomyby2030,according to the vowsofthe entire politicalclass andrepeatedateverypossible chancebyformer president AbdulKalam,father of India’s nuclearweapons program.2 Securing energysupplies is afundamentalelement in nationalpower andsovereignty.Indiaandits politicalclass, duetoits colonialhistory,haveaspecialrelationship to the notion of “sovereignty,”ofwhichthe historicalandpsycho- logicaldimensions still shape the politicalspectrumasthe latest domesticdebatesover the recent nuclearagreement (N-Deal) showed.While it is clearthatthere will beno economicdevelopment withoutthe necessaryenergy

2.77thconference,OsmaniaUniversity,February 2007. Ifri, 2009

Energyandenvironmentalissues:India’s energymodel by2030 31

resources,it is important to ask whatthe cost of this development between nowand2030shouldbe. The quantitativecontextgives asufficientlyclearpicture of the issues:per capitaenergyconsumption in 1991 was 226kg/oil (koe),comparedforexample with 7,800 koeper capitain the UnitedStates or the Europeanaverage which wasclose to 5,200 koe(WorldDevelopment Report,1991). Ataround439koe today,it still remains muchlower than in OECD countries butnot,however,in per capitaincome gaps,so thatIndia’s energyefficiencyis lower bymore than half thaninthe developedworld.Inthe middle of what appears to beaveritable Indianeconomictake-off sincethe mid1980s,energyis directlylinkedto India’s abilityto catch upwith developedcountries,anobjectivethatisnow publiclystatedin all of the country’s long-term planning documents. This studyaims to putIndia’s energyneedsbetween now and2030into perspectiveboth according to different growth scenarios thatseem to bemore or less realistic, butaboveall asafunction of whatwecall the “endogenousenergymodel” thatIndiacouldadopt in the next25years.Wefirst examine India’s energysystem before analyzing energyscenarios and relatedconsiderations through 2030.

Characteristicsof India’senergysystem

Percapitaproduction and consumption Itisfirst important to understandthe particularities of India’s energy“system” well. This system is highlyhetero- geneousandit is necessaryto supplement the macroeconomic analysis with aviewof the extreme disparities thatexist in the distribution andproduction systems.The macroeconomic principles indeeddonot atall reflectthe consumption habits of amajorityof India’s population. The first characteristicof the Indiansystem is thatithas one of the lowest per capitaenergyconsumption rates in the world. Ifri, 2009

32 Energyin India’s Future:Insights

Per capitaenergyconsumption is around553 kWh,with a globalaverage of 2429kWh.3 Itwasadmittedin 2000 (source: GoI)that57% of ruralhouseholdsand12%ofurbanhouse- holds(or close to 84 million homes,42%ofthe total) didnot haveaccess to electricity,hencethe extremelylowrate of per capitaconsumption. Inaddition,access to electricityis limited byfrequent power cuts andthe lowqualityof distribution. The amount of outages varies considerablyfrom one state to another.In2004–2005,spikes in power outages variedfrom 0 to 25% foranaverage of 11.7%,in percentage of electric energysupplyavailable per day(see AppendixAfor2008/2009 projections of the dailypercentage of power outages).

Table 4. Selected energyindicators for2003 GDP Per TPES/GDPElectricity TPES kWh/ Region/ Capita– (kgoe/ Consumption Per Capita $-2000 CountryPPP $-2000 Per Capita (kgoe) PPP (US $2000)PPP)(kWh) China4838 10900.231379 0.29 Australia28295 56300.20 106400.38 Brazil 7359 1094 0.15 1934 0.26 Denmark 2908238520.13 6599 0.23 Germany25271 42100.17 6898 0.27 India* 2732439 0.16 553 0.20 Indonesia3175 753 0.244400.14 Netherlands271244983 0.18 6748 0.25 SaudiArabia12494 58050.46 6481 0.52 Sweden 27869 5751 0.2115397 0.55 United 26944 39060.14 6231 0.23 Kingdom UnitedStates 35487 7835 0.22 13066 0.37 Japan26636 40520.15 7816 0.29 World 7868 1688 0.2124290.31 TPES: TotalPrimaryEnergySupply *DataforIndiaare correctedforactualconsumption andthe differenceinactualandIEA assumed calorie content of Indiancoal. Source: IEA (2005), KeyWorldEnergyStatistics2005 ,InternationalEnergyAgency,Paris, http://www.iea.org

3.Even the extremedisparity withwhichthisenergyisdistributed putsalineofthinking intoperspective. Ifri, 2009

Energyandenvironmentalissues:India’s energymodel by2030 33

India’s energysector is nextdominatedbylarge state monopolies,atthe centralaswell asfederallevel. In2006, close to 88% of electricityproduction capabilities were in the publicsector,whichalso controlledalmost all transmission anddistribution systems.Today,private distribution is limitedto severalstates (Orissa, Delhi Maharshtra, Gujarat andU.P.). Inaddition,the fiveministries in charge of energy issues (Coal,Petroleum&NaturalGas,AtomicEnergy,Power andNon-ConventionalEnergySources) suffer from an obviouslackofcoordination between the implemented publicpolicies.

Thus,duetothe absenceofcompetition anddubioustax policies,the production cost forone unit of electricityin India is among the highest in the world.In2002,Indiancompanies paid47 U.S.cents per unit of production asopposedto 20 in China, 17 in Brazil,12in Japan,5.5 in the UnitedStates and 5inGermanyin terms of PPP.(See AppendixA.)

India’senergymixand the lackoffossil reserves

The secondparticularityof India’s energysystem is that it is a“coalsystem.”In2007,58% of India’s production capacitycame from thermalenergyproducedbycoal. The amount of coalinIndia’s energysystem,whichwill remain India’s main sourceofenergyin 2030,will not continue withoutposing acertain number of problems concerning the externalities associatedwith this type of production. Coal production increasedfrom 140Mtin1984 to close to 400 Mt by2005,or anannualgrowth rate of 5.4%. Unfortunately, Indiancoalisrelativelylowin caloricvalue(anaverage of 4,000 kcal/kg comparedto 6,000 kcal/kg forimportedcoal), whichreduces the energyintensityof production andthe chances forenergyindependence. The average caloricvalue of the coalusedin India’s electricpower plants is rarely higher than3,500 kcal/kg.Inaddition,Indiais not self-sufficient in metallurgicalcoal,and65% of this type of coalmust beimported. Ifri, 2009

34 Energyin India’s Future:Insights

Figure1.India’senergyprimary resourcesand energyuse

Primary energyresources Totalprimary energyuse(in Mtoe)

Non-Power Oil TotalElectricity Coal,113 36% Coal 51% Generation, 161 Natural Gas 9% Non-Power Non-Power Oil, Nuclear Hydro NaturalGas,16 113 2% 2%

Source: Planning Commission,GovtofIndia.

Totalprimary commercialenergysupply

Atthe heart of analyses into decision-making politics, India’s energysecurityis todayone of the centralissues that affects future development capabilities.Indeed, India’s energy dependencehasgone from 17.8% in 1991 to close to 30% todayin terms of totalprimarycommercialenergysupply (TPCES). This ratio comes aboveall from India’s major dependenceonoil imports thatrepresents close to 72%of India’s totaloil consumption.

Soaringratesof consumption

In2005 net exports,Indiaconsumed120.1 Mtofcrudeoil including refinedfuel (carburant). Domesticproduction satat between 30and34 Mtper yearfrom 1990to 2005. Estimated reserves havenot increased, andtodayreach786 Mt,versus 739 Mtin1991. The ratio of proven reserves comparedto production was23in2005. Taking into account the rapidly increasing consumption needsinIndia, notablyin the transport sector andthe increase in motorizedvehicles,India’s energydependencevis-à-vis oil exporting countries aswell as its exposure to risks associatedwith crudeprices appears to beaveritable strategicissueandone of the determining factors in its foreign policy. Ifri, 2009

Energyandenvironmentalissues:India’s energymodel by2030 35

Figure2.Domesticconsumption and production of crude oil (Production and consumption figurespertain tothe yearending of the concerned financialyear)

Source: Ministryof PetroleumandNaturalGas.

Inorder to measure the growth in energyneeds,it is necessaryto note thatthe consumption of oil products increasedbyarate of 5.7% per yearbetween 1980and2004. Intransportation,forexample,the number of two-wheeled vehicles multipliedby90in 30years,by110forcars andby 50fortrucks.However,with onlya3% annualincrease,the growth rate seems to havebeen particularlymoderate since 2001. This reflects both high priceelasticityin private Indian consumption4 andthe impactofmeasures suchasthe growing shift to LPG in urbanpublictransport systems.

Limited energyresources India’s variousenergystrategies are before anything else determinedbythe available energyresources.Unfortunately, Indiais poor in energyresources,except perhaps thorium.5 Theyhavesmall oil,gasanduraniumreserves,andwhile coal

4. From wheretoalarge extentthe emergenceofthe famous “little Indiancars”model comes from,whichmoreand moredominatethe domesticmarketand whoseexportingsuccesses provesthattheynowrepresentacomparativeadvantage forIndiaon the globalmarket,

includingcompared toChina, wherelarge,Western-style cars aredominant. 5. But the useofthesemajorreservesiscontingenton the creation,notlikelyand in any casefaroff,of aviable domesticnuclearnetworkinthisarea. Ifri, 2009

36 Energyin India’s Future:Insights

Table 5. Growthofmotorized transport vehicles Growth Rate 1970-71 1980-81 1990-91 2001-2002 (%) Two-wheelers 575893 253044114199858 41478136 15.3 Three-wheelers 36765 142073 617365 1881085 14.0 Cars 53947590022122665065717456 8.2 Taxis 60446 100845 243748 6844908.4 Jeeps 82584 120475 443734 11688689.2 Buses 93907153909331096 552899 6.1 Trucks 343000554000 1355953 2088918 6.2

Source: Center forMonitoring IndianEconomyPvt. Ltd.(CMIE).

Table 6.India’shydrocarbon reserves Resources Unit Net Production Reserve/ Imports ProvedInferredIndicatedin Production in 2004-05 Ratio 2004-05 (P)(I)(Q)(M)P/Q(P+I)/Q Coal(ason Mtoe 38114 4800715497 1.1.2005) Extractable 147– Mtoe 13489 9600-15650157 16 86 Coal** 186 Lignite (ason Mtoe 1220 36525772 1.1.2005) Extractable Mtoe 1220 9-136 136 Lignite Oil (2005) Mt786*--34 87 2323 Gas(2005) Mtoe 1101*--293(LNG)3838 CoalBed Mtoe 765 -1260-2340 Methane In-situCoal ?? Gasification*** *BalanceRecoverable Reserves ** Extractable coalfrom provedreserves hasbeen calculatedbyconsidering 90%ofgeologicalreserveas minerable anddividing mineable reservebyReservetoProduction ratio (2.543 hasbeen usedin ‘Coal Vision 2025’ forCIL blocks); andrange forextractable coalfrom prognosticatedreserves hasbeen arrivedatbytaking 70%ofindicatedand40%ofInferredreserveasmineable anddividing mineable reservebyR:P ratios (2.543 forCIL blocks and4.7 fornon-CIL blocks asper ‘CoalVision 2025’). *** From deep seatedcoal(not includedin extractable coalreserves) Note:IndicatedGasresourceincludes 320 Mtoe claimedbyRelianceEnergybutexcludes the 360Mtoe of reserves indicatedbyGSPCL asthe same havenot yet been certifiedbyDGH. Source: Respectiveline ministries.

is abundant,it is regionallyconcentratedandlowin caloric value. Their hydroelectricpotentialissignificant butinsuffi- cient formeeting demand.Inaddition,the socialandpolitical Ifri, 2009

Energyandenvironmentalissues:India’s energymodel by2030 37

costs of building dams (likethose built on the Narmada in 2000)are extremelyhigh. The secondfundamentalfacttokeep in mindis that India’s reserves are 80%fossil energies.Today,all known figures andavailable studies showthe short-term limits of exploration possibilities on Indiansoil. All things being equal, attoday’s consumption levels coalandoil reserves will beused upbythe endof the century. Itisestimatedthattoday’s coalreserves will beexhausted in 80years atthe current rate of consumption. Ifall estimated reserves are verified, coalandlignite still havealife spanof 140years attoday’s rate of extraction. Thus,if coalproduction continues to increase atarate of 5% per year,the totalproven andestimatedreserves will beconsumedin the next45years. Numerousuncertainties still remain over the possibilities of more discoveries,butinthe medium-term,coalreserves are on their wayto exhaustion. Moreover,CO 2 emissions and negativeexternalities associatedwith this type of energyare additionallydistinguishing factors. Asfor oil,crudereserves are estimatedat786 Mt,or an estimatedproduction duration of 23years and7years atthe

Table 7.Reserves/production of crude oil and naturalgas CrudeOil (Mt) NaturalGas(BCM) Year Reserves*Production Reserves*Production 1970-71 1286.9 621.4 1980-81 366 10.5 351 2.4 1990-91 739 32.2686 18.0 2000-0170332.4 76029.5 2001-02 73232.0763 29.7 2002-03741 33.0751 31.4 2003-04761 33.4 853 32.0 2004-05739 33.9 92331.8 2005-06(p) 786 33.2110132.2 (p) Provisional

*Reserves position ason1st April of commencing year Source: Ministryof Petroleum&NaturalGas. Ifri, 2009

38 Energyin India’s Future:Insights

current rate of consumption. Despite considerable long-term investments,notablyin the Bayof Bengal,uptotodayno significant discoveries havebeen madethatwouldallowfor the belief thatnewreserves mayhelp fill this shortage. Fundamentaluncertainties remain in Indiaover possible un- exploredoil reserves.Interest shownbymajor international corporations during the latest call fortenders forexploration bythe NewExploring License Policy(NELP)confirms these questions,butuptopresent,no Indianenergyscenario takes this possibilityinto account.

Concerning nuclear,uraniumreserves in Indiaare extremelylow.This explains the urgent necessityto reachthe nuclearagreement recentlysignedin order to putanendto the embargo on uraniumsales to India.Its uraniumreserves are indeedestimatedto beable to feedonly10,000 MW of pressurizedheavy water reactors (PHWR). Inaddition,the uraniumextractedin Indiais not veryradioactive(0.1% ores) comparedwith uraniumextractedelsewhere,whichissome- times asrichas12to 13%. Duetothis,Indiannuclearenergy todayoperates atcosts twotothree times higher thaninother countries.Thoriumreserves,whichappeartobemuchlarger, still bring upconsiderable conversion problems in terms of fissile.

Thus,anythoriumprogram,if one ever comes to be,will necessarilyfollowtwoother intermediarysteps thatthusdo not allowIndiato avoiddirectinternationalnuclearcoopera- tion in the short-term:first,aheavy water reactor program, followedbyafast breeder reactors (FBR)program,andonly then reactors basedon the Uranium-232—Thorium-233 cycle. Itshouldbenotedhowever thattodaythere is not scientific or economicconsensusonthe pertinenceofdeveloping the thoriumprogram. The production anddevelopment costs of this fieldindeedmust beweighedagainst traditionalnuclear fields,even more so because the uraniumsupplynetworks shouldbesecuredthrough clauses in the nuclearagreement signedin October 2008. However,one estimates thatthorium will continuetobeofinterest to India’s politicalclass,dueto the energyself-sufficiencythatitcouldbring to India. Ifri, 2009

Energyandenvironmentalissues:India’s energymodel by2030 39

Table 8. Approximatepotentialavailable from nuclearenergy ThermalEnergyElectricity Particulars Amount TWhGW-Yr. GWE-Yr. MWe Uranium-Metal61,000-t InPHWR 7,992913 33010,000 InFBR 1,027,616 117,30842,200 500,000 Thorium-Metal225,000-t InBreeders 3,783,886 431,950150,000 Verylarge

Source: Department of AtomicEnergy.

The supply/demand relationship and ongoingtransformations

Sinceimplementation of the ElectricityActof2003,the Indiansystem hasundergone major transformations with the aim of increasing production andproductivity.The introduction of availabilitybasedtariffs (ABT)andselling pricesetting between states hasconsiderablyreducedfluctuations and voltaicfrequency. The voltage frequencywasnormal(49–50.50Hz)close to 98% of the time between 2004–2007(outsideofthe northeastern states) versus55% in 2000 (remember thatfrequency decreases when demandexceedssupply). Indianenergyproduction capabilities haveincreasedby 5.9% per yearfor the last 25years.Globalelectricitysupply increasedatarate of 7.2%per yearover the same period.This reflects agradualimprovement in the productivityof thermal electricitycapacity,coalleading the charge (plant load factor, PLF,whichrepresentedclose to 75% of production in 2005), accompaniedbyaproportionaldecline in hydroelectricityin the production mix(source:Planning Commission,2008). Power cuts andthe poor qualityof electricityare thus aboveall areflection of insufficient investments in the management andmaintenanceoftransmission anddistribution systems.Whatiscalledaggregate technicaland commerciallosses (AT&C)inIndia, including stolen electricity, incorrectornonexistent billing,andtransmission anddistribution losses,according to the government accounts forclose to 40%ofproduction. Therefore the State Electricity Ifri, 2009

40 Energyin India’s Future:Insights

Table 9. Electricity production capacity in India Increasing electricityproduction atanannualrate of 7% for close to 25 years (InBnofkWh(BUs))

YearGeneration (BUs) 1990-91 264,3 1995-96 380,1 2000-01499,5 2001-02 515,2 2002-03531,6 2003-04558,3 2004-05587,4 2005-06617,5 2006-07662,52 2007-08586

Source: Planning Commission,2008.

Source: AIE, 2007. Ifri, 2009

Energyandenvironmentalissues:India’s energymodel by2030 41

Boards(SEBs) remain financiallyin the redandincapable of reaching their objectives relatedto investments andattracting private capital. The Ministryof Energyset agoalofincreasing production capabilities by100,000 MW between 2002 and2012. Historically,the objectives of different plans havenever been respectedandtodayit seems to beacceptedthatthe supple- mentarycapacitywill beless than28,000 MW.Butinreality, one of the major problems with India’s electricitynetwork resides in the lackofinvestment in the transmission anddistribution networks (T&D)aswell asintheir appalling governance. Butasthe graph displaying the differencebetween supply anddemandshows(anofficialshortage of between 7and 10%,depending on the year),it is important to highlight that Indiahasbeen able to improve,asbest it could, its energy capacities sinceithasatleast been able produceanannual growth rate of close to 8% over the last decade. Indiathushas the particularityof reaching 8% GDP growth while atthe same time having anenergyshortage of close to 9% (closer to 15% in reality). Whyis this same pattern not possible over the next 20 years? This particularityis dueasmuchtothe Indian consumption model,whichper capitais extremelylow,asto India’s economicandgrowth structures,ledbythe service sector,whichisbydefinition muchless energyintensivethan aneconomyledbyindustry,aswasthe case in the West during its periodof rapidgrowth,andeven more so in China today. Chinahasdevelopedasanysystem thatisregulatedfrom abovewould: infrastructure projects thatare plannedwell in advance,leading to asort of self-realization of the employed industrialization structure.This is whatthe economist A.O. Hirschmancalls in his typology“development through an excess of infrastructure,” 6 emphasizing thatthis type of system often comes upagainst planning errors thatcanbecostly (“white elephants”) or lacks flexibility,notablyin times of tech- nologicalbreakdowns.

6.Hirschman,A.O. The Strategyof EconomicDevelopment ,Yale University Press,1958. Ifri, 2009

42 Energyin India’s Future:Insights

Figure3.Power-supplyposition:Energy

Source: TERI, 2008. The Indiancase seems bearesult of the “development through alackofinfrastructure” model developedbythe same author.Initiatedmore bydecisions madebydecentralized actors,it hasthe advantage of its drawbacks:responding to realdemandandorganizing the production system around muchmore efficient structures andrates of macroeconomic profitability.This makesiteasyto understandthe take-off in information services,of whichIndiaaccounts for65% of the globalmarket todayin acontextwhere the information and knowledge economyseems to besupplanting the material economy.The result is muchless energyintensivemethodsof production and consumption (twotothree times). These figures thuscall forIndia’s energyshortfall to be putinto perspective,given the growth model thatIndiacould continuetofollow,andleadstothe possibilitythatenergy needsare also relatedto the methodsofconsumption andthe dominant production structure (here services).

Inaddition,the correlation between the growth rate and the increase in production capabilities (andthe connectedelas- Ifri, 2009

Energyandenvironmentalissues:India’s energymodel by2030 43

ticity)isalso dependent on growth projections by2030.Itthus seems necessaryto examine the different energyscenarios proposedbyIndiaandto revise them given the alternative Indiangrowth estimates to whichwewill add the externalities of a“coaleconomy,”largelyunderestimatedbythe Indian planner.

Analysisof the differentenergyscenariosand evaluating needs,2005–2030

Differentenergyscenariosand views of the Planning Commission and TERI All things not being equal,the long-term projections of energyneedsare afunction of the estimatedgrowth rate, population growth,the transition from noncommercial 7 to commercialenergy,progress in energystocks aswell associal behavioralchanges,andlastlypoliticalandinstitutionalinputs in the widest sense. Asaresult,the variousscenarios differ from eachother greatly.However,while energydemandfigures are subjectto speculation,the publicpolicyrecommendations formulated todaybythe Planning Commission provideinteresting clues to the future energymodel thatwill exist in Indiaby2030. Inthe scenarios most recentlydevelopedbythe Planning Commission andusedforthe twelfth five-yearplanpublishedin September 2008,no fewer thaneleven scenarios with different inputs are putforth. The twomain variables are the roles given respectivelyto nuclearenergyandto different renewable energies thatare todayundergoing rapidgrowth in India. Aclose reading of this document leadstothe following observations: Basedon the different proposedscenarios,India’s commercialenergyneedsin2031-2032will varyforthe Indian

7.Itissurprisingtonotethatmost forecastson energyin Indiauseeitherdatathatignore the considerable importanceofnoncommercialenergy(humanenergy,dung,etc.),orassume theircompleteeliminationinthe future. Suchisthe casenotablywiththe IEAforecasts. Ifri, 2009

44 Energyin India’s Future:Insights

Figure4.Fuel mixcomparison in year2031-2032

Source: IntegratedEnergyPolicy,Report of Expert Committee,Planning Commission,2008.

government between 1351 Mtoe and1702 Mtoe.This energy level requires anannualenergyproduction growth rate of between 5.2%and6.1%. Addedto the estimatedneedscoming from noncommercialenergy,one arrives atanestimate of between 1536 Mtoe and1887 Mtoe. Itisalso important to note that,even in scenario 11,which is centeredon renewable energies,coalwouldremain in 2031 the main sourceofenergyin India, accounting forclose to 41% of the totalenergymix.The twoother alternatives given bythese scenarios in terms of available resources dependon thoriumandsolarenergy.The large estimateddemandfor coalthatwill beneededto producebetween 632and 1022 Mtoe will not occurwithout,again,the problem of costly anduncertain energyimports,andeventuallyCO2 emissions beingraised.Whiletheyremain extremelylowin per capita terms,in realitythese emissions pose major pollution problems in large urbanareas. The amount of nuclearenergyvaries between 4and6% in the energymix.

Globally,it wouldthusbenecessaryto multiplybythree or fourIndia’s energyproduction in the next20 years,according Ifri, 2009

Energyandenvironmentalissues:India’s energymodel by2030 45

to the estimates of the planning commissions.Butthese figures are intendedto ensure agrowth rate of between 8and9%. We estimate thatthese “voluntary”figures given byIndianplan- ners shouldbereexaminedusing lower growth projections. Inaddition,in order to haveacomplete overviewof India’s energyneedsitisnecessaryto brieflyfocusonthe use of noncommercialenergy,whichserves the large majority of ruralpopulations.The energyterm “noncommercial” includes wood, agriculturalwaste,organicmaterials,notably excrement,mainlyusedforcooking.This energyis consi- deredasnoncommercialbecause it is useddirectlyby consumers outsideofcommercialexchanges.Noncommercial energyoutsideofhouseholdsisalso usedin the informal economy. By2030,the use of noncommercialenergyis estimatedat 185 Mtoe byIndianplanners.There is certainlyaheated debate surrounding noncommercialenergyfigures in India andhowit is treatedbyofficialandstatisticsagencies,with a desire to not measure this type of production whichisseen as not “modern” andis indeedextremelyenergyinefficient,thus their percentage of relativevalue. Buttheyimpactclose to 40%ofIndia’s population andfigures from Jyoti’sbook, The IndianEconomy,Problems andProspects,puts their relative importanceinMtoe at30%ofthe totalin1991,not to mention the factthatthe consumption habits of close to half of India’s population are structuredbythis type of consumption. InAppendixAthere is acomparativeanalysis of the planproposedbythe IEA andthe Planning Commission concerning noncommercialenergyin the totalenergymix. Whether it is calledhydro-biomass bythe IEA or noncom- mercialbythe Planning Committee,this type of energywould represent,in 2030,according to ahypothesis of restrained growth,between 12and19% of the totalenergymix (190Mtoe outofatotalofbetween 1000 ((growth at6%)) and 1500 ((growth at9%)) Mtoe). Inaddition,facedwith these macroeconomicprojections,it is important to putthem into perspectiveinrelation to the extreme diversityof localsituations.The article byJoël Ruet,as well asthe latest findings bythe CentralElectricityAuthority Ifri, 2009

46 Energyin India’s Future:Insights

8 3 2 87 35 .8% 35 0 15 0 1 00 185 6.4% 5.6% 1 , 351 1 , 536 c en a rio 41.1% 1 2 . 0 % ene w ab les 0 + F or c e d R . ff AS u p . 89 0 76 1 0 11 35 .3% eff 361 171 1 00 185 or c e dS 2 . % 0 .1% 1 , 373 1 , 558 + Ra il 2 3. % 22 .8% 11. 0 %9 45.4% 11.9% C o a le h a re + DSM H y dG + T r a nsport .+ ff AS u ps 89 35 447 171 1 00 7 0 17 185 0 .5% or c e dF 2 .1% 0 .1% 6. 0 %6 1 , 454 1 , 639 + Ra il 4 2 .8% 11.3% C o a le + DSM sh a re H y dG .+ ff AS t ( M oe) 89 35 DSM 485 171 1 00 698 185 1.1% or c e dF 2 .1% 0 .1% 5.9% 1 , 488 1 , 673 2 9. 0 % 7.3% 1 0 . 2 %1 41.7% H y dG + C o a le .+ ff E q u i v a len AS 89 O il 35 .9% 485 191 1 00 818 185 5.1% or c e dF 0 .1% 5.4% 1 , 813 2 6.8% 1 0 .5% 1 0 . 2 %1 H y dG + C o a le AS h– M t of 89 35 486 174 1 00 715 185 or c e dF 0 .1% 2 . 0 %1 5.8% 1 , 695 1 , 51 0 628 2 8.7% 1 0 .3% 1 0 .9% 4 2 . %4 + DSM P g r o wt GD 89 97 35 35 486 1 00 185 or c e dF GAS 0 .1% 1.9% 5.3% 1 , 837 1 , 652 r 8% H y d + dG 2 6.4% 1 0 .7% 45.5% 1 0 .1% s fo a r ie 89 0 51 35 .3% 485 1 00 9 2 98 185 or c e dF 5.7% 0 .1% 1.9% 1 , 654 1 , 839 2 6.4% 5 0 .5% 1 0 .1% + H y d ro su mm a r io 89 0 41 en 13 486 1 00 998 185 or c e dF 5.5% 5. 2 %5 0 .1% 0 .7% 9.8% 1 , 7 00 5 2 .9% 2 5.8% N u c le a r + +1 1 0 . Sc b le 69 0 51 35 .1% , 655 Ta 485 1 00 953 185 5.7% 0 .1% 1.9% 1 , 84 0 885 51.8% 2 6.4% 1 0 .1% H y d ro 67 1 2 3456789 0 41 00 85 2222222222 13 .5% . 0 %4 .8% , 022 , 887 486 4.1% Ca se 0 .1% 0 .7% 1 , 7 0 21 2 5.7% D omin a nt r c i a l1 o C a l F or c e dF N o.

Sc en a ri t u r a l Ga s1 t u r a l Ga s5 D es c ription Sc en a rio C r u d e O il Na T ot a l1 C o a l1 Na H y d ro N u c le a r4 N on- c omme C ommer c i a l C r u d e O il N u c le a r7 T ot a l1 T ot a l w ithout N on- C o a l5 R ene w ab les H y d ro R ene w ab les N on- c ommer i a l9 Ifri, 2009

Energyandenvironmentalissues:India’s energymodel by2030 47

Table 11.Projectionsforelectricity requirement ProjectedPeakInstalled Billion Year DemandCapacity kWh (GW)Required(GW) TotalEnergyEnergyRequired@GDP Growth @GDP Growth Requirement atBusBarRate Rate @GDP Growth @GDP Growth Rate Rate 8% 9% 8% 9% 8% 9% 8% 9% 2003-04633 633 59259289 89 131 131 2006-07761 774 712724107109153 155 2011-121097 1167 10261091 158 168 220 233 2016-17 15241687 14251577 226250306337 2021-22 2118 2438 19802280323372425488 2026-272866 342326803201437 522 575 685 2031-323880480636284493 592733 778 960 Note:Electricitygeneration andpeakdemandin 2003-04isthe totalofutilities andnon-utilities above1 MW size. Energydemandatbusbarisestimatedassuming 6.5% auxiliaryconsumption. Peakdemandis estimatedassuming system load factor of 76% upto2010,74% for2011-12to 2015-16,72%for 2016-17 to 2020-21and70%for 2021-22 andbeyond.The installedcapacityhasbeen estimatedkeeping the ratio between totalinstalledcapacityandtotalenergyrequiredconstant atthe 2003-04level. This assumes optimalutilization of resources bringing downthe ratio between installedcapacityrequiredto peak demandfrom 1.47 in 2003-04to1.31 in 2031-32.

Figure5.Projected electricity generation (BkWh)

Source: TERI, September 2008.

(CEA)presentedin AppendixA, showthatinIndia, more than elsewhere,the average does not represent the majority.

Lowerelasticity and growth,relativeneeds Keeping in mindthe observations uptothis point,notably in the Indianeconomy’s abilityto growdespite limitedenergy supplies andlowper capitaconsumption,ourhypotheses are the following: Ifri, 2009

48 Energyin India’s Future:Insights

India’s energydemandin 2030,asestimatedbythe Planning Commission aswell asacertain number of research institutes,will in factbethree to fourtimes lower buteven closer to twogiven the different projectedscenarios. Keeping these figures in mind, Indiawill,according to our estimates,orient itself towardacleanenergymodel,madeup of localcombinations of different energymixes,creating publicandprivate partnerships on asometimes verylocal level. Ifcoalremains the dominant sourceofenergydueto inertia, nuclearwouldbeable to provideenergyforthe major urbancenters,if,however,this is sociallyandpolitically acceptable,whichisnot agiven. Inthe variousprojected scenarios,it in anycase does not represent more than7%of the energymixin 2030.Renewable energies seem to havea bright future,buttheir effectisnot accountedforinthe different scenarios,notablyduetothe absenceofadefined economicmodel anduncertainties over innovation capabilities on the subcontinent. Acertain number of renewable energies indeedhavethe advantage of allowing forthe negotiation of productions costs per unit of electricitybythe investment costs in infrastructure,notablyin transmission. The first economicrelationship between energyproduction andgeneralgrowth is foundatthe level of elasticity between per capitaenergyproduction supplyandyearlyper capitaGDP growth. Electricityproduction,not consumption,is usedhere sinceconsumption must take commerciallosses into account (including stolen electricity,incorrectbilling and customer noncompliance,adding upsometimes to 15%). It emerges thatsince1980,the elasticitybetween energy production andGDP growth hasover time decreasedandthis tendencyis set to continue,signifying anactualde-correlation between growth andenergyintensity.This evolution also showsthatIndiangrowth cancome aboutaswell through endogenousgrowth connectedto innovation andalternative energyinputs.Ifweuse this figure,andconsider thatelas- ticityshoulddecrease over time,one must concludethatall scenarios useduptonowto ensure aninclusivegrowth rate of between 8and9% must beputinto perspectiveand loweredto aninclusivemultiple of between 2and2.5. Ifri, 2009

Energyandenvironmentalissues:India’s energymodel by2030 49

Table 12.Elasticitiesand totalprimary energyrequirement ElasticitiesUsed forProjections (TPCESw.r.t.totalGDP) TPCES 1TPCES 2ElectricityElectricity (Falling (Constant (Falling (Constant elasticities) elasticities) elasticities) elasticities) 2004-05to2011-120.75 0.8 0.95 0.95 2011-12to 2021-22 0.700.8 0.85 0.95 2021-22 to 2031-320.67 0.8 0.78 0.95 TotalPrimary EnergyRequirement(Mtoe) TPCES TPNCES* TPES Year 8% 9% 8% 9% 8% 9% 2006-07389 397 153 153 542550 2011-12496 546 169 169 665 715 2016-17 665 739 177 177 842916 2021-22 9071011 182181 1089 1192 2026-271222 1378 184 183 14061561 2031-321651 1858 185 185 1836 2043

Lastly,it seems necessaryto compare these models to annualGDP growth estimates.Inthis regard, one canexamine the studycarriedoutin2005for the WorldEconomicForum byagroupofthe leading experts on India’s economy.The growth estimates were formulatedbytaking into account not onlythe opening upofthe countryto localandinternational investments butalso socialfactors thatcouldaccompany(good governance,integration of ruralregions,redistribution policies) or hinder (absenceofinvestment in infrastructure,poor governance,unfriendlyinternationalenvironment) Indian growth. The first scenario,called“BollyWorld,”using aplayon wordsonIndia’s famousfilm capital,combines intense globalization,centeredin particularoninformation services, with exclusivegrowth,notablyleaving outruralregions and unskilledlabor.Initialrapidgrowth wouldfall beginning in 2015 duetoanincreasinglydividedsociety. Asecond“AtaktaBharat” scenario (Indiagetting stuck) combines amediocre internationalenvironment with reforms thatare implementedtoo slowly,notablyin infrastructure Ifri, 2009

50 Energyin India’s Future:Insights

suchasfor water andenergy,in suchawaythatthe dividends of globalization andexclusivegrowth wouldgenerate an unstable situation andthe return to aHindugrowth rate of 4% toward2025. Lastly,the “Pahale India”scenario (IndiaFirst) attempts to reconcile rapidinternationalintegration with inclusive growth through anactiveeconomicpolicyof reinvesting globalization’sdividendsinto health,education,poverty reduction,physicalinfrastructure andgooddomesticgover- nanceprograms andimprovedrelations with immediate neighbors.Growth thatwouldremain relativelystrong,even in amediocre internationalenvironment (domesticdemand wouldcompensate),wouldspeedupeven after 2015 and movetowardarate close to China’s at10%per yearnear 2025. These scenarios thuspresent particularlylarge growth rates of between 4and8% aswell ascontrastedprofiles of India’s economicfuture,whichjustifies paying greatattention to the evolution of severalcrucialfactors suchasgovernance,public investments in physicalandsocialinfrastructure andlastlythe wage structure.Ourpersonalfeeling is thatthese three scenarios couldprovetobeperfectlyvalid“together” with permanent tensions existing between the three.The result is a growth trendthatwoulddistanceitself from the veryopti- mistichypothesis of the eleventh plan(10%bythe endof the time period)toarriverather atafigure of around6–7% per year,or even 5–6% if the globalsituation were bleaker. Asaresult,India’s energyneedsmust beputinto perspectiveandleadsone to believethatthe countrycouldin realitydevelop auniquedevelopment model in whichalter- nativeforms of energyand“clean” methodsofconsumption wouldbefavoredrather thanasystematicincrease in energy production.8 Thus,if one refers to the Planning Commission’s scenario 11 (nuclear+renewables),it becomes necessaryto revise estimates of India’s primaryenergyneedsandplace them around1000 Mtoe (in comparison with the “voluntary”

8. Formoreonthispointsee the studybyJ.J.Boillotpublishedin Futuribles ,April 2008, No. 340. Ifri, 2009

Energyandenvironmentalissues:India’s energymodel by2030 51

1350Mtoe). This figure is important because oncesubjected to environmentalfactors,it leadstodifferent estimates of the amount of renewable andnewenergies in the totalenergy mix.

Environmentalissues DuetoIndia’s geographicfeatures,energyproblems cannot bestudiedwithouttaking into account the externalities associatedwith different production methods,the various environmentalthreats thatfossil energyproduction poses or even the different theories of climate change.IfIndia, while not ratifying the TokyoProtocol,displaysrelativedomestic consensusconcerning its per capitaCO 2 production,well belowthatofChinaor the UnitedStates,it must still today facespecificities thatmake it defacto vulnerable to now certain changes in its environment,given the factthat: •Temperatures in Indiaare alreadyhigher thanglobal averages.The first temperature changes predictedin global warming scenarios will thusquicklyimpactit. •Changes in monsoon cycles wouldprobablyhavedisas- trousconsequences on aneconomywhose growth still dependsheavilyon “goodmonsoon” years. •The increase in the sealevel woulddirectlyimpactIndia andits thousandsofkilometers of coastline. •Himalayanglaciers thatsupplyIndiawith water and hydroelectricpotentialcould, were theyalteredor reduced, completelydisrupt India’s resources. Today,the environmentalimpactassociatedwith energy production hasalreadyreachedacriticalthresholdin acertain number of urbancenters. 9 Thus,India’s large cities are today amongst the most pollutedin the world, ascarbon footprint figures prove. Despite the decision of the Supreme Court to mandate the use of liquefiednaturalgas(LNG)inbuses,rick-

9. Onthissubject,see the report on the GlobalFootprintNetworkofOctober2008:“India’s Demand on NatureApproachingCriticalLimits”(see AppendixA),aswellasthe worrying evaluationonthe impactof climatechangeinIndiain the SternReport. Ifri, 2009

52 Energyin India’s Future:Insights

Figure6.India2025:The three scenarios

Source: Jean-Joseph Boillot. shawsandtaxis in NewDelhi in 2001,the situation is still far from being settled.Moreover,the same measure is in the middle of being spread to alarge number of Indiancities, often under the combinedpressure of the same community networks andlegalauthorities,whichadvances pressure from the population. Indiacanthusnot excludeair,groundand water—currentlythe most serious—pollution problems from its energyscenarios andpublicpolicies.Ifitdoes,it risks jeopardizing the sustainabilityof its growth andthe sustainabilityof its infrastructure.There is in addition the interna- tionalpressure to fight climate change,whichthe Bali Summit showedwasnot heading in the same direction astrade negotiations,where Indiawasable to relativelyeasilyunite southern countries in afront against richones. Therefore,the Planning Commission itself admits that considering the current structure of the energymix,noncon- ventionalenergies are particularlyinteresting andseems to be signaling thatone of the major solutions to the country’s energydevelopment couldlie in these sectors.However,despite the development of hydroelectricandwindenergies,noncon- ventionalenergies (wind, biogas,solar) still todaymake upless than1%ofIndia’s totalcommercialenergyproduction. Ifri, 2009

Energyandenvironmentalissues:India’s energymodel by2030 53

Evaluatingthe potentialofnonrenewable energy

Evaluating the potentialofrenewable energies provides an interesting avenuefor reflecting on India’s future energy model. Hydroelectric, solarandwindenergies combine for close to 200,000 MW of potentialenergy,according to available studies.

Itappears,forexample,thatinIndiasolarenergyis par- ticularlypromising,with average sunshine of 6kWh/m2/day. The potentialseems considerable,notablyfordomesticuse in ruralregions thatsuffer from isolation andthustransmission issues. 10 With the commercialefficiencyof solarcells at 15%—whichiscurrentlythe case—it is thusestimatedthat with 5million hectares of installations,solarenergycould provide,according to some projections,close to 1,200 Mtoe/year. AsTable 14 shows,investment costs remain prohibitive,butthere is nothing to indicate thatinnovations and/or hybridsystems will not eventuallybecome commer- ciallyand, afortiori socially,viable.

Itisinthis waythatfor 5years nowthere hasbeen aprolif- eration of companies thatare on the cutting edge of these sectors,notablyin windenergy.Butthis is not onlybecause the available datashowsthatthe largest number of companies activeinthe energysector are involvedin energyefficiency. Thanks notablyto investments bythe state andthe Ministry of NewandRenewable Energy(MNRE),certain companies quicklyacquiredinternationalstature andcapacity.Butmost are relativelysmall companies andthusfavor mass decentral- izedoperations.Moreover,the ministryis examining adraft nationalrenewable energyplanthatproposes arenewable portfolio standard.The standardwouldrequire thatbetween nowand2010close to 10%ofenergycomes from renewables. Knownfor being highlyresponsive,certain Indiancompanies immediatelysawthe “perfectmarket” thatthese sectors make up,notablyin ruralgeographicareasthatlackaccess to energy andin cities thatexperienceinsufficient supply.

10.Indiahasmorethan700million ruralinhabitants and theirabsolutenumbershould not significantlydecreaseoverthe periodstudied. Ifri, 2009

54 Energyin India’s Future:Insights

According to arecent study, 11 projects involving great sums of moneyare todayon the agenda forcompanies such asSuzlon,whichhopes to triple its windfarm in the next three years atacost of nearlyUS$ 1billion. Tata-BP Solar announcedits desire to increase its solarenergyproduction plants to 180MW,requiring additionalinvestments of 100 million dollars beginning this year. Lastly,the giant RelianceIndustries hasinits plans asolarmodule PV project atacapacityof 1GW in India, with acost reaching close to US$ 3billion. Itremains cleartodayin the classicscenarios thateven if Indiasucceedsinincreasing its newenergycapacitybya factor of 40so astoarriveatacapacityof 100,000 MW (comparedwith 7,000 MW today),the amount of newenergies in the energymixwill beclose to 7% (87 Mtoe outof 1350Mtoe). However,when looking atrenewable energies as awhole (newenergies +hydro,foratotalof122 Mtoe),and comparing them with acommercialprimaryenergyneedthat is brought into perspectiveusing alower growth rate according to ourthree scenarios,one instead arrives atafigure of close to 12%(122 outofatotal1000 Mtoe). This percentage thusrepresents,in comparison with projections forOECD countries,one of the strong characteristicsofIndia’s energy model looking ahead to 2030.

Politicaloutlook and culturalfactors All analyses of India’s energymodel to come lastlyneces- sitate taking political,socialandculturalfactors thatare specificto Indiainto account. While attempting to imagine India’s politicalsituation in 2025isclearlyadelicate matter, India’s energypolicywill nonetheless bemarked, no matter the organization of coalitions proposedbythe Congress Party or the BJP,bythree structuraldeterminants thatare today agreedupon byIndia’s politicalclass:strategicindependence (or self-reliance,whichiseven stronger feeling); the decen- tralizedcharacter of the IndianUnion even beyondthe

11. IndiaRenewable EnergyTrends ,AlexisRingwald,July2008,CentreforSocialMarkets. Ifri, 2009

Energyandenvironmentalissues:India’s energymodel by2030 55

Table 13.Renewable energyresources Resources Unit Present PotentialBasis of Accessing Potential Hydro-power MW 32,3261,50,000 Totalpotentialassessedis 84,000 MW** at60% load factor or 1,50,000MW atlower load factors Biomass WoodMtoe/ 140620*Using 60million Ha wasteland yearyielding (20)MT/Ha/year BiogasMtoe/ 0.6** 4In12million familysizedplants year0.1 15 Incommunitybasedplants if most of the dung is put through them Biofuels Biodiesel Mtoe/year- 20*Through plantation of 20*million hectares of wastelandor 7*million hectares of intensivecultivation Ethanol Mtoe/year<110From 1.2million hectares of intensivecultivation with requiredinputs Solar PhotovoltaicMtoe/year- 1,200 Expectedbyutilising 5million hectares wasteland atanefficiencylevel of 15 percent forSolar PhotovoltaicCells ThermalMtoe/year1,200 Mwescale power plants using 5million hectares WindenergyMtoe/year<110Onshore potentialof65,000 Mwe at20 percent load factor Small Hydro Mtoe/year<15 power *The availabilityof landandinputs forgetting projectedyieldsisacriticalconstraint. ** Basedon 50percent plants under use. Source: Respectiveline ministries.

borders of its states,andlastly,aprinciple of nondualism between Manandthe Universe. 1. First,energypolicies andstrategies will beevaluated first andforemost bythe independencecriterion. Inacountry thathasonlybeen so forahalf-century,this wordhasan incrediblylarge psychologicalimportancefor India’s ruling class.Its economicstrategy,the “swadeshi” movement,trans- latedas“self-rule” andformulatedbyGandhi to contendwith importedconsumption products,still marks state strategies, notablyin all areasthatdealwith sovereignty,suchasenergy Ifri, 2009

56 Energyin India’s Future:Insights

Table 14.Capitalcostsof generated electricity from renewable options CapitalCost EstimatedCost TotalInstalled Sl. (Crores of of Generation Capacity(MW) Source No. Rs/MW)Per Unit (upto (Rs/kWh) 31.12.2005) 1. Small*Hydro-Power 5.00-6.00 2.50-3.501748 2.WindPower 4.00-5.00 3.00-4.00 4434 3. Biomass Power 4.00 3.00-4.00 377 4. Bagasse Cogeneration 3.00-3.502.00-3.00 491 5. Biomass Gasifier 2.50-3.00 3.00-4.00 71 6. SolarPhotovoltaic25-3015.00-20.00 3 7. Energyfrom Waste 5.00-10.00 4.00-7.5046 *<25MW

independence. The term independencethusoften appears in all of the Planning Commission’sreports andthe political discourse tiedto energypolicy,suchasthe declaration of President Kalamonthe 60th anniversaryof the IndianUnion. Inaconcrete manner,this is translatedinto the refusalto belinkedto companies from one state or to asole power,and it explains India’s desire to balancethe American,Russianand Frenchpowers,asithasdone with its armament programs over the last 50years.Inaddition,the energysector’sgradual opening upwill probablybecarriedoutinmuchthe same waythatall other sectors in India’s economyhavefor the last 15 years,suchasfor example the automobile or distribution sectors; namely,it encourages the emergenceofnationalcham- pions thatare capable of competing with major multinationals from all over the world.Inthe nuclearsector,TataPower or Reliancewill not escape this thinking.All other energysectors will followthe same principle.Itisinthis contextthatthe importanceofrenewable energies shouldbehighlighted, whichare capable of ensuring alarge part of India’s “independence.”Inaddition to its militarycomponent,nuclear energyin Indiais also endowedwith adistinctmystique,as the names of different Indiannuclearmissile launches for example reflect,suchasAgni,namedforthe sacrificialfire of the endof times.

2.The needto haveadecentralizedandlocalvision for Ifri, 2009

Energyandenvironmentalissues:India’s energymodel by2030 57

India’s energymodel is secondlyakeyelement forunder- standing the next20 years.Inacountrythatishighlyfrag- mented(for example,there are close to 200 politicalparties in India),energyissues will not bethe same forHimachal Pradesh (extremelyrichinhydroelectricresources) asfor RajasthanorBengal(poor in energyresources buthighly populated). Atthe locallevel,the 20 million chulas,whichare small energystations thatrunonlocalfuel,attest to asystem thatisdeeplymarkedformost Indians byruralandlocal issues.There are todaythousandsofmicro-projects combining traditional,classicandalternativeenergies,taking into account the specificities of the affectedgeographicregions. 3. Lastly,it is necessaryto highlight atrait relatedto India’s philosophyandculture,whichestablishes specialconnections to nature andmethodsofconsumption,notablyenergyones. From Vedictraditions to relations with contemporarypolitical thought,it seems pertinent to state thatIndiaappears in this contextasparticularlyreceptivetodevelopment methodsthat donot accept negativeexternalities forthe sake of growth. Suchafactor shouldplaygreatlyin the case of renewable energies.The mystiqueofsolarenergynotablyis basedon this equation:“free,”natural(to the limit of the divine) anddirectly controllable energy.Moreover,the failure of acompanyas popularasTatain the controversysurrounding the Bengal factoryforconstructing Nanos,illustrates not onlythe strength of Indiandemocracyatthe most decentralizedlevel,butalso the sustainabilityof arejection of development atanyprice.

Ifri, 2009

Shakti’savatars:WhichenergyforIndia? EnergyProjectionsand Sustainability,Innovative EconomicModelsforFirms and the UrbanEconomy

Joël RuetandZakariaSiddiqui*

Introduction BeyondIndia’s vast fieldof macroeconomicswith their alreadysizeable concerns,lies aseaof variegatedmicro- economicissues:public/private coordination issues,local models,urbanandruralspecificities linkedto povertyalleviation,

InHinduism,the goddess Shaktiisassociated withcreativeenergyaswellasmotion. This ideaisin linewiththe recompositionsand inventiveness oneseesin India.Thisimage,though itbelongstothe HinduPantheon,hasbeeninfactrather“secularized”and its usehereshould beseeninthissense. Less of areligious symbol in contemporary India, Shaktihaslargely becomeasymbol of the state: ShaktiBhawan —literallythe houseofenergy—isthe official name bywhichevery Indianknows the Ministry of Powerand its Bureauof EnergyEfficiency in Hindi,the secondofficiallanguage of IndiawithEnglish *Joël Ruetisresearcheconomist atFrance’sNationalCenterforScientificResearch(CNRS), ResearchGrouponTechnology,Territoriesand Societies(LATTS),and NationalSchool of Bridgesand Roads(ENPC). Heisalsoheadchairof the EmergingEconomiesand Global IndustryProjectatthe School of Mines(ParisTech). ZakariaSiddiquiisadoctoralstudentat

the CentreforEconomicStudiesand Planning(CESP),JawaharlalNehru University,NewDelhi. Heconducted most of hisworkforthispaperwhileavisitingdoctoralstudentatthe Center forOperationResearchand Econometrics,UniversitécatholiquedeLouvain,Belgium. Ifri, 2009

60 Energyin India’s Future:Insights

regionalvariations,andparticulardynamism of some firms whichhavealreadygone globalandare inventing newbusi- ness models.This chapter showsthatenergyis no exception; on the contrarythis subjecthaseconomicaswell aspolitic implications parexcellence,andconcerns macro aswell as micro levels.Itexemplifies the complexities,progress and contradictions of the country,andits continuing nationaland socialconstruction. This chapter addresses these issues in aforward-looking andsystemicmanner.Given India’s increasing growth rates andcatching-upprocesses,andgiven its demographic dynamics,Indiais nowshaping its ownmodels (business, urbanforms,adoption/development of technology)for the nextdecades. This chapter will address the following aspects: •The first part addresses macroeconomictrajectories; scenarios of politicaleconomy,andeconomicandenvi- ronmentalchoices. •The secondexamines Internationalprojection; projects in CentralAsiaandAfrica–Middle East; the impactof the simultaneousemergenceofChinaandIndia;sectoral organization andindustrialdebates,andmargins of action beyondmacroeconomicprojections. •The thirddiscusses microeconomictrendsandindus- trial-societalpotentialfor renewable energy;urbanand ruralmodels; trajectories of private business models and industrialdiversification of firms (in particularan updatedassessment of windandnuclearambitions of Indiangroups in energysector or not).

The importanceofbeingIndia: Diversity enlargingthe usualenergyframework

Inthis section westart bydescribing the big picture and some of the underlying complexities of the energyscenario in India.By“complexities” weimplytwothings: Ifri, 2009

Shakti’savatars:WhichenergyforIndia? 61

•Causalityis not alwaysobvious. For instance,the social organization,through its impactonproductivityof labor andenergyuse,structures the levels andforms of access to energy.Inreturn,differentialaccess mayenable or converselymaylockinsome productiveandsocial changes.Inadiverse country,this relationship hasshaped sixdecades of socialandeconomictransformation. •Different levels of issues are intertwined: Nationalmacro policies affectverylocalequilibriums in waysthatgo beyondmere disaggregation; conversely,the veryexis- tenceofsuchdifferent approaches to micro issues renders quite improbable anyattempt to extrapolate current macro figures.Examining this complexitymay berewarding in interpreting macro expectations. The last decadehasbeen richinexamples of this dynamic forthose seeking afine understanding of mechanisms atwork. This dynamicoffers considerable scope forinnovativepoli- cies.Some mayconsider that,asoftoday,the learning curveis long,butthere is adefinitelyobservable collectivelearning andinvention of appropriate solutions.

Beyond macro-sectoraltrajectories:Politicaleconomy,micro- economicand environmentalchoices. Let uslayoutthe generaleconomicandstructuralcontext thatunderlines energychoices in India.

Business asusual:Recentoverall growthand energycontents While energydemandis definitelygrowing in India, per capitaenergyconsumption is notatellingfigure,atleast not anoperativeone thatcaneffectivelydrivepracticalpolicies. Indiais not adevelopedeconomywhere the average is also representativeofthe majority.Indiais aremarkablydiverse a societywhere “average” cannot beequatedto anymajority. Examination of efficiencyissues,atalocal,micro level, also captures the linkages between labor structure,poverty alleviation,trendsinaccess to energyandnot just levels of access butforms of access to energy.Indiais still alargely Ifri, 2009

62 Energyin India’s Future:Insights

Figure7.Primary (commercial) energyconsumption and GDPof India

PrimaryEnergyConsumtionand GDPofIndia

) 300000 500 y on 250000 400 rg lli ne 200000 E)

Bi 300 yE 150000 TO

Rs 200 100000 ar (M P( 50000 100 im Pr GD 0 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 -8 -8 -8 -8 -8 -8 -8 -8 -8 -9 -9 -9 -9 -9 -9 -9 -9 -9 -9 -0 -0 -0 -0 -0 -0 -0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

GDP PCE(MTOE)

Source: ReserveBank of IndiaandMinistryof StatisticsandProgramImplementation.

ruralcountrywith 72%ofits population living in villages (Census2001). This “ruralscene” itself is formidablycomplex, asitcombines nonmodern aswell asmodern agriculture,rural industryandprocesses of urbanization in situ,whether in areasthatbecome “peri-urban” or in places that“urbanize” rapidly.Inthis context,these are all aspects thatneedto be understoodbefore framing policies,or deriving from national extrapolations of business-as-usualscenarios thatjust maynot happen.

Oneconomicgrowthand energydemand India’s remarkable economicgrowth sincethe decadeof the 1980sisfueledbyincreasing energyconsumption. India’s totalcommercialprimaryenergyuse hasnearlyquadrupled since1980from 102 Mtoe to 404.4 Mtoe (million tons of oil equivalent) in 2007(British PetroleumStatisticalReview 2008). Energyconsumption andGDP haveastrong correlation,asexpected(Figure 7). Inaddition to this,noncommercialenergy 1 also playsamajor role in fueling the activities in

1. Noncommercialsourcesof energy,includingfuel wood,agriculturalwasteand dung,are primarilyused byhouseholdsforcookingenergy.Thesearecalled noncommercialbecausea majorproportionofthesearesimplygathered byactualusers directlyasopposed tobeing

tradedcommercially.The figuresarrived atareonthe basisof assumptionthat30%ofthe totalenergyconsumedinIndiaisfrom noncommercial(see PlanningCommission, Governmentof India(Gol,2006). Ifri, 2009

Shakti’savatars:WhichenergyforIndia? 63

Figure8.Evolution of commercialenergyuse

Source: Energy,Center forMonitoring the IndianEconomy(CMIE)Pvt. Ltd.

ruralIndia.In2007noncommercialenergyuse alone wasof 173.3 Mtoe,thus30%ofthe total. Coalhashistoricallyprovidedmore than50%ofcommer- cialprimaryenergyneedsfor India, followedbyoil,gas,hydro andnuclear. Evolution of the commercialenergymixof India is depictedin Figure 8. Indiahasgrownmore rapidlyin recent years averaging around8.8% between 2003–04and2007–08. The globaleconomiccrisis of 2008hasbrought downthe expectedgrowth of GDP afterward(shownlater in Table 17, page 65). TodayIndiais the thirdlargestproducer of coalin the world, though of lowqualityandvariable economicvalue 2 . Over time,India’s petroleumimports haveincreasedto meet growth in the transport sector andincreasing production of fertilizersfor the agriculture sector.Atthe same time,since 2001–02 Indiahasbecome anet exporter of oil petroleum products thanks to its large refinerycapacity.Asizeable share of crudeoil imports (nearly10%in2005–06) is thuslinkedto refineryactivityandreexports,andtherebyreflects amoder-

2.Highsulphur and lowcaloriccontent,aswellasdifficultgeographicalaccessibility.Most of India’sreservesareinareaswithpoorinfrastructuralaccess:eitherin remotecentralIndia orin poorstateslikeBiharand Jharkhand. Ifri, 2009

64 Energyin India’s Future:Insights

Table 15.Projected primary energyrequirements assuming GDPgrowthof8%annually(in Mtoe) NaturalNon- Hydro NuclearCoalOil Total Gascommercial 2011–121217 257 166 44 169 665 (1.80)*(2.56) (38.65) (24.96) (6.62)(25.41) 18 31 338 214 64 177 2016–17 842 (2.14) (3.68) (40.14) (25.42)(7.60)(21.02) 2345464 278 97 182 2021–22 1089 (2.11) (4.13) (42.61) (25.53) (8.91) (16.71) 2971622 365 135 184 2026–27 1406 (2.06) (5.05) (44.24) (25.96) (9.60)(13.09) 35 98 835 486 197 185 2031–32 1836 (1.91) (5.34) (45.48) (26.47) (10.73) (10.08) *Figures in parentheses represent afuel’sshare of totalprimaryenergyrequirement foraparticularyear. Source: IntegratedEnergyPolicyReport,Planning Commission (GoI, 2006).

nization of the economyandits integration into the world economiccircuits. Nonetheless,noncommercialenergywill remain an important contributor to India’s totalenergyrequirement (Table 15). Assumptions aboutthe elasticityof energyconsumption with respecttoGDP are centraltopredictions.For some time there hasbeen anobservable decline in the energyrequirement per unit of output(Table 16). These estimates of elasticities are comparable to internationalstandards.

Table 16.Energyuseelasticity withrespecttoGDPregression usingIndia’stime series Percentchangeincommercialenergyusefor1% changeinGDP Time PeriodPer Capita TPCES* with respecttoGDP 1980-81 –2003-041.08 1 (Rs. Crores 1993–94) 1990-91 –2003-040.82

1980-81 –2003-041.36 2Electricitygeneratedwith respecttoGDP 1990-91 –2003-041.06

*TPCES =TotalPrimaryCommercialEnergySupply. Source: IntegratedEnergyPolicyReport,Planning Commission (GoI2006). Ifri, 2009

Shakti’savatars:WhichenergyforIndia? 65

Butafurther fall in elasticities will beextremelydifficult to achieve. While on the one handthere maybesome potential to reduceenergyintensityin existing industrialprocesses,three factors playin the other direction. First,the reform of the small scale sector is slow.Second, the current industrialization of the countrywill see the share of industryrising in the GDP.Third, the rising income levels will foster lifestyle changes thatare more energyintensive(forsome estimates,see Planning Commission,Government of India(GoI2006,p. 19). India’s GDP hasgrownimpressivelysincethe mid1980s andmore so since2003–04. Ithasnot just meant homothetic growth butrather arapidtransformation of the share of different sectors in their contribution to the economy.Itis interesting to examine the evolution in the sectoralbreakdown of economicgrowth (Table 17). Itiswell knownthatservices havegrownrapidlyin India. However,these donot onlyconcern information technology butthe whole range of services.With nearlyhalf of measured economicoutputmadeupofservices,Indiais in auniqueposi- tion among lowincome/emerging economies,andis midway between China, whichhasastrong industrialstructure,and Brazil,whichhasmore the structure of adevelopedeconomy in terms of sectoralcontributions to the GDP.This strong sectoralbiastowardservices explains one aspectofIndia’s energydemandstructure.However,one fourth of the economy (27%) is composedof industrialactivity.Indiaalso aims at sharing the role of the “factoryof the world”with China.This sector hasindeedshownsteep growth sincethe economic reforms,accelerating further since2003–04. From anaverage

Table 17.Sectoralgrowthratesof realGDP(1999-2000 prices)(%) 2000-2001- 2002-20032004- 2005- 2006- 20072008- 0102 03040506070809 Agriculture -0.02 5.86 -5.89 9.290.705.823.95 4.5 2.0 Industry6.75 2.826.89 7.8010.54 10.63 11.45 8.5 7.5 Services 5.65 7.18 7.47 8.49 9.14 10.34 11.0810.8 9.6 Total4.35 5.81 3.84 8.527.45 9.409.6297.7

Source: EconomicSurvey2007–08,Government of India, http://indiabudget.nic.in and Economicoutlook for2008/09,Economicadvisorycouncil to Prime Minister of India, http://eac.gov.in. Ifri, 2009

66 Energyin India’s Future:Insights

of 5.5–6.5% sincethe 1980sitwent into 8–10%since2003–04. Itisimportant to note thatsincethe 2000smanyefforts have been directedtowardmodernization/rationalization of produc- tiveprocesses,andcontributedto the improvement in India’s energyintensityper unit of output. The stagnation of agriculture is bad newsinaneconomywhere nearly72%ofthe population lives in ruralareas,where 30%derivefrom agriculture andtheremaining42%isbasicallysubsistence. Itisalso bad news,asthis trendreflects the neglectininvestment in agriculture sincethe early1990s. Asaresult,manyopportunities forenergyefficiencyimprovement remain untapped, asinirri- gation or in the use of fertilizers. Given this disequilibriuminsectoralevolution,the challenges are even greater forthe publicadministration in India. While it is usuallybelievedthatthe development of aservice economylowers the energycontent of GDP,thatisonlytrue insofarasdirectenergyuse is concerned.However,the absenceofgoodurbangovernanceinthe cities where services development occurs (in particularthe “IT boom”) can lead to inefficient urbansprawlanddisarrayin urbantransportation systems.This hasbeen seen in manycities where anIT boom happened, e.g.,massivegrowth in private vehicles.The number of vehicles in the car,jeep andtaxicate- gories hasincreasedeightfold—from alevel of 1.16 million in 1981 to 9.5 million bythe endof March2004. The corre- sponding increase in two-wheel vehicles is 19 times—from a level of 2.16 million to 52million. Consumer durables like refrigerators,air conditioners,washing machines andso on will clearlyboost the overall energyintensityof the urban economy.

Ontrendsin demand and economicgrowthviz.societalchangeand sustainability Macroeconomicextrapolations basedon current energy structure andexpectedeconomicgrowth suggest thatIndia’s energyrequirement is expectedto increase further bythree to fourtimes (GoI2006) within aspanof25to30years.Thus, the predominanceofcoalasafuel to India’s economicgrowth is often saidto pose environmentalchallenges both in terms Ifri, 2009

Shakti’savatars:WhichenergyforIndia? 67

of localpollution andglobalemissions (see Menon-Choudhary andShukla, 2007,pp.33-34 forprojection of CO2 andSO 2 emissions). The dependenceonimportedoil hasreached75% of the totalrequirement because of stagnant supplyathome. Inrecent times coalimports haveincreaseddespite sufficient reserves,duetolackofdomesticproduction,congestion of infrastructure,andlowqualityof domesticcoal. Lookedatlike this,these trendsare worrisome. Yet this growth of energydemandis linkedto a“total” socialtransformation nowin progress in India.Given India’s demographicprofile,it hasawindowof opportunityof about 20 years,butnot more,to transform its socioeconomicstruc- ture.This means the generalization of education andprofes- sionaltraining,building asocialsafetynet,integration of this humancapitalinto systems where mobilities andlogistics contribute to totalfactor productivityandallowthe rationalization,temporarysecondarization andfinaltertiarization of the economy.These processes will greatlymodifythe energy profile of the Indianeconomy,possiblyleaving behindpoverty traps thatwill require developmentalandtrickle-downmeas- ures to address.These will havetorelyon the localadoption of energyresources in anefficient manner in backwardand ruralareas. Inthese terms,the claim is thatgrowing energy demandandqualitativechange in energystructure are aimed not onlyatsustaining current economicgrowth (between 8 and10%),butalso ateradicating povertyandmeeting India’s humandevelopment goals.This aim is thusnot just political (GoI2006). Itissharedbythe internationaldevelopment community(WorldBank 2007,p.2). Successfulpublicadmin- istration will also lead to lower noncommercialenergyuse. The current pressure on the localandglobalenvironment is significant,basedon the factthatthe massiveuse of noncommercialenergysources in Indiais inefficient. This offers substantialopportunities forsustainability. Looking atthe details of this pivotalandoften neglected segment of the population,one findsthatnearly782million people in Indialackefficient energyresources forcooking, suchaskerosene andgas(NSSO 2007). Alternatively,they must dependon locallyavailable biomass,sometimes causing Ifri, 2009

68 Energyin India’s Future:Insights

Table 18.Fuel forresidentialsector2005(Mtoe) Petroleum Coal GasBiomass ElectricityTotal Products Absolute 2.75 20.93 0.63 123.63 8.89 156.84 Share (%) 1.75 13.35 0.43 78.83 5.67 100.84

Source: EnergyBalances of Non-OECD Countries,2004–2005,InternationalEnergyAgency, Paris.

deforestation to meet their energyrequirements (Table 18). These resources are becoming increasinglyscarceasthe population increases.The efficiencyof biomass varies from 8to 16% (see Appendix,Table B1). Reducing the needfornoncommercialenergyservice implies ashift towardmore sophisticatedenergies.Inpartic- ular,this implies asixfoldincrease in electricitygeneration capacityfrom 157 GW in 2006–07. Electricity’s share will increase with modern economicactivity,aselectricityis one of the most effectivepovertyalleviators. Renewable energyaccounts foronly6% of today’s total installedcapacity.Toaugment energysupplies while targeting reducedemissions,the Ministryof NewandRenewable Energyhaslaunchedanactiveprogramfor tapping the large potentialofrenewable energyin the country(see Table 21, later in this chapter). Microeconomicsolutions maythusbepursuedin order to findmacroeconomicandenvironmentalsustainability.But then whatare the implications forthe evolution of world energyprices? Addedto China’s surge in energyrequirement, will this projectedincrease in India’s energyrequirement have asignificant impactoninternationalprices of energyand green house gasemissions? The increasing role of IndiaandChinain globalenergy balances encouragedthe InternationalEnergyAgency(IEA)to focusits WorldEnergyOutlook for2007onChinaandIndia. The increaseddemandfrom these countries shouldnot be lookedatinisolation of their sizeofpopulation. These two countries together constitute more than40%ofthe world’s population including 48.2%ofthe totalpoor living in the Ifri, 2009

Shakti’savatars:WhichenergyforIndia? 69

Table 19.GDPpercapitaforyear2005(US$) CountryUSA UK JapanRussiaBrazil ChinaIndia InCurrent Prices 41,768 36,851 35,593 5,349 4,289 1,533 726 InPurchasing Power 41,89033,238 31,267 10,845 8,402 6,757 3452 Parity(PPP)

Source: UN StatisticsDivision.

developing world(1.4 billion) earning less thanUS$1.25aday 3 . Indiaalone housed33.12%(456 million—42%ofIndia’s population) of the world’s poor in 2005(Chen andRavallion 2008). Initiatives likethe “lighting abillion lives,”originating in India, not onlyaim atsolving India’s energypovertyissues,butalso atcapitalizing on the experiencetoreachalarger share of the globalpoor. Bycontrast,andto putMalthusianprojections forIndia into some perspective,it is important to note thatIndia’s total primaryenergyconsumption wasonly3.9% of world consumption4 forthe year2006. China, the UnitedStates and the EuropeanUnion (EU-25) consumed15%,21% and15.8%, respectively,forthe same year. India’s GDP hasindeedgrownimpressivelysincethe mid 1980sandmore so in last 5years.Buteven after suchgrowth in GDP,India’s per capitaGDP is abysmallylowcomparedto its peers likeBrazil,ChinaandRussia.India’s per capitaGDP is less the half thatofChina(Table 19)5 . This question of high energyconsumption in Indiacan beaddressedrationallybyasking whether Indians are consuming more energyper unit of outputorper person and if India’s growth is reallyleading to reduction in poverty (socialefficiencyin energyintensityrise) in whichcase it

3.$1.25isthe recentlyrevised povertylineforinternationalcomparision. InIndia$1.25 translatesinto21.6rupeesadayin urbanareasand 14.3rupeesin ruralareasforthe year 2005(forfurtherdetailssee Chenand Ravallion (2008)). 4. BP StatisticalReview2008,http://www.bp.com/multipleimagesection.do?categoryId= 9017892&contentId=7033503

5. Inadditiontothis,growthishighlyskewed region-wise. The poorest of the stateslike Bihar,Orissaand UttarPradesharegrowingslowerthanthe nationalaverage (wediscussthe politicaleconomyimplicationsof thiselsewhereinthischapter). Ifri, 2009

70 Energyin India’s Future:Insights

Figure9.Energyuseper$1,000 of GDP(in PPP)

Source: MillenniumDevelopment Indicators,http://millenniumindicators.un.org.

contributes to the humanandsocialglobalcapital. This question assumes importancebecause if growth of the economyis not leading to improving performanceinpovertyreduction then increasedenergyneedsfor this growth wouldbea matter forincreasedconcern. This wouldnot onlyconcern localefficiency,butbecause one of the sources forreducing globalemissions is through trading quotasandimproving efficiencyfaster in emerging andpresumablydeveloping economies.

Windinguponmacrotrendsand microshifts Absolute energyneedsfor India’s economicgrowth are undeniablyhigh butwesee adeclining energyintensityof GDP over time.Ifwecompare the energyintensityof India with other countries representing different regions of the World, Indiais well within comparable standardsandhas been successfulinreducing it even further (Figure 9). Energyintensityof the Russianfederation is quite high butdeclining,andChina’s energyintensity,also quite high initially,hasdeclineddramaticallyto the point thatChinanow joins the clubof low-energy-intensitycountries likeBrazil, JapanandGermany.InChinathis followedagradualclosing Ifri, 2009

Shakti’savatars:WhichenergyforIndia? 71

downofthe veryenergy-intensiveproduction facilities of Mao’sregime,even though delayedforawhile (see Fei et al., 2007). The decline of India’s energyintensitycanbeattrib- utedto tworeasons:either bythe increase in the relative contribution of less energyintensiveeconomicactivities like services,or byanincrease in the overall efficiencyof industry. The services sector hasmaintainedahigh growth, contributing 55% to overall GDP,butthis must becoupled with the right investment in urbaninfrastructure. Further,with suchalarge percentage of the population still living in apoorlyproductiveinformallabor pool,this will beadetermining factor—asoftodaydifficult to assess—of the amount India’s industrialintegration into the world economywill lead to “formalizing the informalsector” (see the works of AmitabhKundu) 6 . Despite these uncertainties,India’s per capitaenergy consumption is quite lowcomparedto the countries considered in Figure 10.Therefore,Indiais characterizedbylowper capita income,lowper capitaenergyconsumption andlowenergyuse per unit of output. Therefore,the question of high emissions is primarilyrelatedto its high population size,even before its inefficiencies in the production structure.The latter mayon the contraryconstitute reserves of progress to betappedin the future. While energyconsumption in the organizedindustrial sector andin the urbandomesticsector are increasinglya subjectofconcern,the role of noncommercialenergies in the ruralsector andof inefficiencies in the unorganizedsector still playamajor role in sustainability. Asaconsequence,the technologicalandenvironmental performanceofIndia’s industrialsector giveits energyevolu- tion strategicor even geostrategicdimensions.The other major players (the UnitedStates,Russia, ChinaandFrance,to name afew)haveamajor role to playin this evolution which hasimplications forIndiannationalpoliticaldynamics. This

6.“Formalisingthe InformalSector?IndianLabour Marketin aGlobalizingWorld.” Inaugural address,AmitabhKundu,Chairon IndianEconomy,Sciences-PoParis,27 March2008, unpublished. Ifri, 2009

72 Energyin India’s Future:Insights

Figure10.Commercialenergyconsumption percapita

Source: UN StatisticsDivision.

role must beunderstoodwithin the current political/economic contextofIndianreform.

Energyprofile and politicaleconomy India’s high rates of economicgrowth haveattracted considerable attention from the internationalcommunityand domesticexperts butfor different reasons.The International community’s concern is the impactIndia’s demandwill have on internationalcrudeandgasprices while domesticexperts are concernedaboutthe failure of suchgrowth to bring about acorresponding shift in the employment structure (Papola 2007). The twoissues are linkedandthushavetoberecon- ciledbypolicymakers.The structure of energyconsumption is of greatconcern in electricitywhere there is acorrespond- inglylowend-use productivity.Thatispartlyexplainedbythe long-distancetransport infrastructure forother primary sources,butalso bythe centralityof the tools thatthe State ElectricityBoardscandeploy.Ifsocialism is the “Soviets plus electricity”(Lenin),independent Indiais to agreatextent “democracyplusState ElectricityBoards” —for better or for worse (see Ruet,2005). Inpoint of fact,wecanconsider that the electrification programwasnot successfulenough as despite its geographicalreachthe actualenergysupplyis little more thanintermittent andhasresultedinto severe environ- mentaldegradation. This originates from the politicsofnation building anddevelopment since1947. This must beunderstood in order to evaluate the bottlenecks to betargetedbycontem- poraryreforms. Ifri, 2009

Shakti’savatars:WhichenergyforIndia? 73

AreviewbyBhaskarandGupta(2007) of growth since 1991 hasidentifiedimportant disparities.There exist enor- mousdifferences between sectors,most obviouslybetween agriculture andindustry/commercebutalso across states and regions.Poor regions of Indiashowno signs of economic awakening.Widening inequalitywith higher growth rate states hasproducedmanyriches in Indiaalong side38% of world’s poor.This phenomenon hasmadethe term “inclusive growth” apoliticallyunavoidable criterion in undertaking reform. One of the keyingredients to ensuring local-inclusive growth andglobalsustainabilityis access to modern energy services,whichare largelymissing in most poor regions of India.Lackofaccess to modern energyservices (MES)can hinder progress in health care,education,gender justiceand economicdiversification of the ruraleconomy.Wethen partic- ularlyexplore the issueofthe lackofaccess to MES.

1947–1991:Howruralelectrificationchoiceshaveshaped the energy sector In1947,85% of the population livedin ruralareaswith the modern economyconcentratedin afewlarge cities.Public financialtransfers went from the cities to the countryside, promoting anationwidetrendtowardthe reduction in economicinequality.Ruraldevelopment extendedthe geo- graphicscope of industrialdevelopment,whichunder British rule had been confinedto afewcities (Bombay,Calcutta, Ahmedabad). From 1947 to 1967,manyinequalities dimin- ishedbetween states,andbetween urbanandruralareasin terms of income,butnot asfarasaccess to energywas concerned.State ElectricityBoardswere formedonlyin the 1960s. Inthe 1950s,muchofthe energysupplywasgranted through aregulatedtariff andsubsidizeddistribution system of LPG andkerosene forcooking andlighting. Inthe 1967 elections,the Congress Partylost keystates forthe first time.In1971,IndiraGandhi ledthe partyto victoryagain butonaprofoundlyrenewedpolitical-economic platform. Indiahad enteredaneraof “mixedsocialism.”Up until 1984,the politicalintermediaries in societywere shifting. The accumulation of physicalcapitalremainedacentral Ifri, 2009

74 Energyin India’s Future:Insights

model,butwith intermediation in the form of socialcapital constitutedbycommunalties andclass.States became major actors in the negotiations,whichwere no longer the sole domain of the federalgovernment. The overall dynamicsof inequalitywere still dominant,butnewphenomenaappeared: •The emergenceofmidsizecities asrelaysfor the development-orientedadministration; •An“overall ruraldevelopment process,”the start of agri- culturalmechanization creating activities forsmall local workshops,themselves generating localpurchasing power forbasicmanufacturedgoods; •Andespecially,the obtaining of state benefits bythe formerlyunderprivilegedclasses through specificdeve- lopmentprograms fortribaloraboriginalcommunities, untouchables or Dalits including the specificprograms and administrations in favor of the inhabitants of certain slums. This periodshowedamarkedacceleration in electrification in generalandruralelectrification in particular(see Figure 11). Butitwasalso the periodwhen the majorityof State ElectricityBoardsstoppedmetering consumption and/or heavilysubsidizedtariffs so astodevelop “vote banks.” The importanceofruralelectrification andassociatedsubsidies in electoralpoliticsemerges from the factthatmost underdevel- opedstates of India, suchasBiharandUttarPradesh,histori- callyhavehad little access to electricitybuthaveplayedthe role of “kingmakers” atthe federallevel. Itisdifficult to establish adefensible methodologyto evaluate the quantumof subsidies going to ruralareasbecause three factors are atplay simultaneously:“cross subsidies” forindustrial,domesticand agriculturaltariffs differ.Totalcosts are badlyassessedand the officialfigures are merelyanaccounting result rather than anevaluation of full economiccosting.The “nontechnical losses” average more than20%inthe country,reaching 40or even 50%insome districts—andnearly90%onsome feeders. Whether one calculates the cost of nontechnicallosses valued atunrealistictariffs,or the officialload ataneconomiccost, or anycombination,figures wouldvary.Using different methodologies,Ruet (2006a)findsthatthese subsidies amount Ifri, 2009

Shakti’savatars:WhichenergyforIndia? 75

Figure11. The riseofruralelectrification

Source: Nouni et al. (2008).

to 1to2.5 billion euros ayearfor the period1997–2002.This, along with the development of India’s capital-intensiveGreen Revolution7 ,accrueddisparities among regions where the Green Revolution waspossible andthose where it wasnot; andwithin the latter it increasedthe disparities in income among landedfarmers who couldinvest andothers. From 1985 to 2007,a“liberalization” process wasinitiated andthe politicaleconomyrefocusedon industrythatwas suffering the adverse effects of carrying,through cross- subsidies,the lowtariffs paidbyhouseholdsandfarmers. Liberalism andeconomicrevivalofcities went handin hand. From 1993 to 2004,Indiawent from aGini coefficient of 32.9 to 36.2.The coefficientwashigher in urbanareas(37.6) thanruralareas(30.5). AsinChina, the impactofthis growing inequalityis reflectedin asmaller reduction of India’s absolute povertyrate (less thanadollaraday)thanwhatcouldhave been achievedif the recordedgrowth had been divided according to the income distributions recordedatthe start of the period.Had this happened, the absolute povertyrate today wouldbeless than42%. Ascanbeseen from Figure 11,village electrification sloweddownduring the period.

7.Afterafood crisisin mid1960s,Indiaembarkedupon a“greenrevolution” programusing intensivecultivationtechniqueslikehigh-yeildingvaritiesof seed and intensiveuseofground waterwiththe help of subsidized power. Ifri, 2009

76 Energyin India’s Future:Insights

Rural-urbandivideand interstatedisparities Seventy-twopercent of India’s billion-pluspopulation lives in ruralareas,directlyor indirectlydependent on agriculture, andsurvives on just 20.5% of the GDP.Nearly80%ofthe income is enjoyedthe rest 28% population. One might see the lackofaccess to modern energyservices (MES)asasignifi- cant barriertoanentryintoamarket processtargetedbya series of economicreforms under the aegis of structural adjustment programs sincethe earlynineties.Thusthe imbal- anceinfavor of richer regions andindustrialsectors. Biases in access to MES occurfor twomajor reasons:a nationalfinancialeffectduetothe current structure of investment,aswell aslocalpilferage to satisfylocalvestedinterests. Both translate into politicaleconomyequilibriumwhere the “higher governance” sees anallianceofthe industrialists and the state developing into liberalpolicies,andthe “lower governance” sees locallypowerfulcommunities channeling their economicbenefits through anupper handover the localstructures of the state,allowing practices of corruption. Therefore,the growth experienceofthe Indianeconomy is mainlyconcentratedin asmall section of the population (see Aiyer [2008]forfurther details),leading to high savings. SavingstoGDP ratioincreasedby11 percentage points from 23.5 in 2001–02,andfinallyto 34.8 in 2006–07. These funds are being increasinglyusedbyIndiancorporations for acquiring foreign firms instead of greenfieldprojects in India thatwouldincludethe domesticenergysector.While the benefits of suchacquisitions mayaccruetoIndiain the long run, it leaves 72%ofruralpopulation in low-level income traps for aprolongedperiod.In2006,the valueofoverseasacquisitions reachedapeakof$30billion whichismuchhigher thanthe inflowof the FDI in India($5.5 billion) forthe same fiscal year(the net outflowwouldthen represent around3% of the GDP).8 Even though Indiafaces energyshortages,there are situa- tions when availabilitydoes not lead to finalconsumption by

8. True,balanced in alarge waybymassiveremittances. Ifri, 2009

Shakti’savatars:WhichenergyforIndia? 77

the people who needit. The publicdistribution system (PDS) subsidizedbythe Government of Indiaoperates atthe grass- roots level with averyextensiveretail network all around Indianvillages andtowns.Itdistributes basicfooditems and kerosene atsubsidizedrates to meet the needsofthe poorest population of India.Unfortunately,this system is one of the most corrupt in India.The allocations of PDS including kerosene findtheir wayto the “black”9 market byPDS agents. Nearlyhalf of the subsidizedkerosene foundits wayinto the “blackmarket”—in monetaryterms,amounting to 40billion rupees in 1999–2000 (ESMAP 2003,p. 2). These agents are getting richatthe expense of the poor,who endupbuying subsidizedkerosene through the “black” market atexorbitant rate.Inthe case of electricity,farmers were often countedas electricityusers even when electricitydidnot reachthem10 .

Currentlyonly44% of Indianhouseholdshaveaccess to electricalservices,with erraticsupply(NCAER 2007, Chapter 3). This implies thatofall people worldwidewho do not haveelectricity,35% liveinIndiaalone—576 million people (Modi2005). Poor states of IndialikeBihar(5%), Jharkhand(9%),Orissa(19%) andthe northeastern states have verylowaccess rates forelectricity(AppendixB, Table B6). On the other handmanyof the poor are deniedsubsidized kerosene supplies,whichistheir main sourceoflighting in ruralareasandcooking in urbanareas.

Lackofaccess to modern energylikeliquefiedpetroleum gas(LPG)for cooking andelectricityforlighting,seriously affects the health andeducation of children andwomen. This is duetorespiratorydiseases (Parikh et al. 2001andDuflo et al. 2008) causedbyburning of biofuel in veryinefficient stoves,particularlyindoors.Children’seducation is hampered duetothe time spent in finding fuel forcooking andbylack of illumination from kerosene fueledlamps.Therefore,the

9. Thisblackmarketissoopenthatadrumofkerosenecanbeeasilyseeninfrontof most of the food storesin small townsof India.

10.One village knowntothe authorhashadfaulty transformers forthe last 7years,yetin officialreportssuchvillagesarestill said tobeconsumingelectricity.Thisisrepeated across the country(see Ruet2005,quoted above). Ifri, 2009

78 Energyin India’s Future:Insights

absenceofmodern energysupplyto ruralareasisatthe heart of the economicexclusion of large sections of the population. Access to energyservices hasnever been afullyintegrated component of the reforms in the energysector. Reforms are mainlyfocusedon market development and privatization so thatbudgetarydeficits canbearrested.One canonlyexpecteconomicdisparities to widen under sucha policyregime.Economicallywell-off families make use of their access to modern energyservices forfurther economiceman- cipation while families withoutsuchservices remain lockedin asubsistenceeconomy(Figure 12). Thusrealaccess to MES canbeseen asaninstrument forleveling the playing field between the richandthe poor.

National The disparitybetween ruralandurbanhouseholds’ access to electricityalong the socioeconomicclass in ruralareascorre- spondswell with income inequality.Itishardto figure out the mechanisms through whichoverall growth canensure access to electricityforsuchhouseholdswho are largely excludedfrom the mainstreameconomicprocess of the nation in the absenceofanexplicit policyforaccess to modern energyservices (Figure 12.See also Table B2through Table B5 in AppendixBformore information). The disparityalong the socioeconomicclass lines in access to LPG forcooking is quite high in urbanareaswhile in ruralareasitissimplyabsent. Whatever access to LPG exists in ruralareas,it exists among the richest classes.The average level of access in ruralareasis quitelow(8.6%ofthe households) comparedto urbanareas (57.1% of the households). Under the current policyregime it is difficult to see how suchalarge population canbeconnectedto MES in a sustainable waywithoutaconsciousandeffectivepolicy mechanism. Inanutshell,in aneconomywhere there is still scarcity of economicresources there is atacit alliancebetween what wecouldcall “newproprietoryclasses” (asBardhan,1984,used to call the equilibriumpost independenceinhis classicalpiece Ifri, 2009

Shakti’savatars:WhichenergyforIndia? 79

Figure12.Socioeconomicdisparitiesin access toelectricity and LPG

Population with ElectricityasMajor Source of Lighting 100

60 on ti la

opu 40 fP eo

ar 20 Sh

0 123456789101112 SocioeconomicClass

Rural AllClass Average(Rural) Urban AllClass Average(Urban)

Population wi th LPGasMajor SourceofCooking 100

80 on ti

la 60 opu fP

eo 40 ar Sh

0 123456789101112 SocioeconomicClass Rural AllClass Average(Rural) Urban AllClass Average(Urban)

Source: NSSO (2007).

of analysis). The industrialandnewurbanelites tolerate the long association of some middlemen with the localstructures of the state aslong astheyhavethe possibilityto tapglobal resources.For their part,the traditionalmiddlemen have allowedliberalization in aslong astheir oldsources of income are not altered.Wewish to underline here thatthese dimensions Ifri, 2009

80 Energyin India’s Future:Insights

are neither the classical“lobbying” forms one wouldfindin anycountry,nor dotheyreachthe depths of apredatory economy.Itisimportant to realizethattheyare verymuchin tune with one characteristicof the nationalconstruction of a modern,post-independenceIndia: establishing democracyin a hierarchicalsocietyof communities.Indiahasofcourse changedalot,buttobridge the gapbetween a“one person, one vote” system atthe head of the countryandthe “one community,one voice” atits roots,there hasbeen the needfor this kindof quidpro quo(the reader mayrefer to references suchasCorbridge andHarriss [2000]forfurther general outlook andconsequences).

Federal These issues are further complicatedbyinterstate disparities.The interstate Gini income inequalities coefficient went from 20.2in 1980to 29.2in 200011 (Quan2007). This is relatedto the concentration of investments in afewlarge states aswell asthe concentration of remaining large pockets of povertyin onlysixstates.Certainlyit is no surprise to find Bihar,UttarPradesh,MadhyaPradesh andRajasthan—given their high population growth andendemicpoverty—among the sixstates.Butitismore surprising to findamong them Western Bengal,whichunderwent amajor agrarianreform under its communist regime andtodayis starting to attract investors.More surprising still is the state of Maharashtra, whichfor along time wasthe first destination forboth FDI andnationalindustrialinvestment andwhichstill todayis among the leading recipients (see Table B1toTable B5in AppendixBfordisparities in access to electricity). Arepre- sentation bydistrictwouldshowahigh contrast between the veryrichwestern part of Maharashtraandthe verypoor and isolatednortheast,or even the eastern districts of this fairly developedstate whichis,nevertheless,threatenedbyan unprecedentedeconomicandsocialcrisis in agriculture (the Indianruralmilieuis experiencing acrisis unknownin humanhistory,with 100,000 suicides among peasants in

11.The increaseinChineseinterstateGini incomeinequalitiesforthe correspondingperiod wasof onlyonepercentage point,from 23.6to24.5. Ifri, 2009

Shakti’savatars:WhichenergyforIndia? 81

10years). This “fracture” in Indiaoverlaps averyclear-cut geographicrealitybetween the country’s northeast (except forPunjab,HaryanaandDelhi) on the one hand, andthe west andsouth on the other.The former groupofstates is in a process of demographicgrowth which,although slowing, remains veryhigh. The fertilityrate remains veryhigh (usuallyabout3.5 andoften close to or exceeding 5) as opposedto the south (in most districts,it is lower than3,and often 2),where the literacyrate is verylow,especiallyamong women. Incorollary,the capacityto engage in economic development thatwould“absorb”the demographictransition is veryunevenlydistributed.This capacityis well measured bythe “dependencyratio” (nonworking population—children or elderly—to working population),with variations ashigh as 100%. Astate suchasBihar,alreadythe most denselypopu- latedin India, continues to haveadependencyratio of 0.95, whichischaracteristicof underdevelopment,comparedto states suchasKeralaor Tamil Nadu,where the ratio holds steadyat0.56,in other wordsarate closer to thatofdevel- opedcountries. Alocalcombination of lowGDP per capitaandhigh densityhasmadefor deforestation andahigh ecologicalfootprint,with pressure on remaining forests andbiomass andthe over-use of traditionalenergies over modern energies. Figure 13 summarizes severaldisparities in terms of income,electricityintensity,andthe qualityof governanceof State ElectricityBoards(usuallyagoodproxy forpublicgover- nanceasawhole). Italso showsthe kindof “fragmentation” the nationalsystem is likelyto undergo asdifferent states are being reformedthrough funding andmethodsofdifferent agencies:the worldbank,the Power FinanceCorporation of the Government of India, andthe AsianBank of Development.

Disparitiesin access,environmentalunsustainability and underdevelopment:Renewable energyasthe wayout Nearlythe whole of India(92%ofthe households) uses cooking sources thatare veryinefficient,causing significant localandglobalemissions (refer to Figure 12,page 79). Ifri, 2009

82 Energyin India’s Future:Insights

Figure13.Statedistribution income percapita, average electricity consumption and governanceofStateElectricity Boards AssessingIncome Level NetStateDomesticProductand ElectricConsumption

Figures ©P.Chapelet,J.Ruet,2004 Madewith the help of Philcarto:http://perso.club-internet.fr/philgeo Figure sources: Net State DomesticProduct,source:www.indiastat.com,RajyaSabha UnstarredQuestion No. 2028,dated11.03.2003; ElectricityConsumption,source: www.indiastat.com,Lok Sabha, UnstarredQuestion No. 2800,dated17.8.2004; State-wise Rating Score of State ElectricityBoards/Utilities byCRISIL (Credit Rating Information Services of IndiaLtd.) /ICRA (Investment Information andCredit Rating AgencyLtd.), source:www.indiastat.com,Lok SabhaStarredQuestion No. 330,dated13.03.2003; Funding Agency,source:interviews,www.adb.org,www.worldbank.org,Power FinanceCorporation Ltd.,www.pfcindia.com Source: Ruet (2005) (©P.Chapelet andJ.Ruet),andCRISIL

Meeting the energyneedsofthese ruralareasofIndia through solarenergyforlighting andbiomass forcooking is a quite attractiveproposal,asagoodamount of sunlight is available all aroundthe country(Sharma2007). The current policy regime looks atrenewable energyresources asalast resort to provideaccess to MES in cases where it is not possible to extendthe grid.Butquantitativeestimates of Nouni et al. Ifri, 2009

Shakti’savatars:WhichenergyforIndia? 83

Figure13 (continued).Statedistribution income percapita, average electricity consumption and governanceofStateElectricity Boards AssessingGovernance SEBsRatingand FundingAgenciesforReforms

Wehaveincludedcases when state agencies havenot been engaged, whether anagreement has been signedor not,andwhether agreements havebeen terminatedlater or not. Figures ©P.Chapelet,J.Ruet,2004 Madewith the help of Philcarto:http://perso.club-internet.fr/philgeo Source: Ruet (2005) (©P.Chapelet andJ.Ruet),andCRISIL

(2008) showthatrenewable energyprojects become economi- callyviable even if gridextension is requiredbyonly2km. Cust et al. (2007) provideadetailedreviewandtheir ownestimates on competitiveness of variousrenewable energytech- nologyoptions forruralelectrification in India.Inourview, the cost effectiveness of gridelectricityforvillages must be puttotest,especiallyin the contextofalackofmetering to Ifri, 2009

84 Energyin India’s Future:Insights

monitor the consumption,or lackofcompetent administra- tion (institutionalcosts) andoften verythin andscatteredload patterns (physicalcosts) in ruralareas. Village electrification is in factnot aone-shot investment,butarecurring problem either because electricitydistribution network wires andtrans- formers remain dysfunctionalfor verylong periodsoftime or are stolen after implementation. Andwhen ruralelectrification works,it becomes aplaygroundof the corrupt employees andconsumers (Ruet 2005). This aspectofvillage electrification is never takeninto account. Onthe other hand, these costs donot exist with locallysuppliedMES.Thus,dividends from renewable sources are enormousoncethe technologies are standardizedandcustomizedforIndianconditions,and oncefinancing mechanisms are in place. Innovativebusiness andfinancing models are neededto dealwith high upfront costofinstallingrenewable energytechnologies basedMES facilities forthe poor. 12 Peoples’ frustration with current grid suppliedelectricityhasledto the emergenceofsmall shops of solarpanels withoutmuchgovernment effort in small towns of manystates.Inaddition to this,there are afewcivil society andbusiness organizations involvedin providing MES to the ruralpopulation using these renewable energytechnologies, or RETs.13 Asfarasenergyis concerned, there is no straightforward conclusion to bedrawnfor India.Its problems are complex, butincreasing supplies of energysources will benecessaryto provideaccess to those who needit to improvehumandevel- opment. Access to energyis not onlydeterminedbyits phys- icalavailability,butisalso differentiatedbypower relations inherent in avarietyof socialconstructions including gender (Clancyet al. 2007). Ensuring supplyis sufficient forGDP growth is onething,butthatmaynot improvethe human development index(HDI)score of India(Figure 14). Assuming the HDI to beabetter indicator of humanwelfare,its relationship with energyconsumption becomes animportant question. Ahandfulofscholars (Pasternak[2000], Garcia [2006], Diasetal. [2006], Joyeux andRipple [2007]and

12.http://in.youtube.com/watch?v=cVQJI5fNqbI 13.http://in.youtube.com/watch?v=K79tX7I2Y98,http://in.youtube.com/watch?v=HGTO2Nm5lng Ifri, 2009

Shakti’savatars:WhichenergyforIndia? 85

MartinezandEbenhack[2008])haveaddressedit andfounda veryhigh degree of positiverelationship.The generallessons from these studies are: 1. For the poorest people andcountries,small increments in basicenergyservices haveledto dramaticincreases in the HDI (UNDP 2004 14). 2.Oncebasicneedsare met,the relativeimpactlessens. Inother words,little improvement to humanwelfare canbeachievedbygreater energyconsumption patterns atveryhigh HDI score levels. 3. Impacts will bemore profoundif the energyis deliv- eredthrough modern/commercialservices likepiped gasandelectricityinstead of traditionalbio fuels. The Government of India’s latest report on integrated energypolicy(GoI2006p.2–3) also showsalinearrelation between electricity/primaryenergyconsumption andGDP, while the relationship between energy/electricityconsumption andHDI score is of the kindmentionedabove. Itisdifficult to justifythe massiveGDP growth of Indiaif it does not lead to dramaticimprovement in HDI score or reduction in povertyandhunger (Table 20). Even if it is not energyefficient,China’s HDI score hasacceleratedto catchup with Brazil,while India’s HDI score gapwith Chinahas widened(Figure 14). The rise of malnourishedpeople in this high growth periodis quite contraryto whatone wouldexpect (Table 20). These are the realconcerns thatIndianpolicy makers andthe internationalcommunityshouldaddress. Indiais facedwith the challenge of simultaneouslytack- ling the one-thirdof the developing world’s poor living within its borders (456 million,2005estimate),limiting its localand globalemissions so thatitdoes not adverselyaffectthe sustainabilityof the earth,andstill providing ahealthyenvi- ronment forits ownpeople.This challenge gets more difficult given the massivelackofaccess to MES: 576 million Indians lackelectricity(lighting) and782million people lackproper

14.www.energyandenvironment.undp.org/uploads/forums/54/PP%20MDGs%20and% 20Energy%20draft%203%20format.doc Ifri, 2009

86 Energyin India’s Future:Insights

Figure14. Comparativehumandevelopmentindexin China, Indiaand Brazil HDIScoreOverTime

Source: WorldBank.

cooking arrangement.15 Providing MES to suchahuge population will onlyincrease the environmentalchallenge until we make greater use of renewable energytechnologies. This relationship conveysanimportant message forcoun- tries with HDI scores likeIndia’s.This means thatdramatic improvement in HDI score of Indiacanbeachievedthrough aslight increase in the per capitaenergyconsumption, providedthataccess to MES is extendedto the population at large—in amanner comparable to those of developedcountries. Pressure to increase its energysupplies andthe conse- quent negativeenvironmentalimpactoffossil fuels hasled Indiato aconsciouspolicytowardrenewable sources.Infact, Indiais anexception in having asolelydedicatedministry

Table 20.Numberof personsundernourished (in millions) 1990–921995–97 2003–05 India206.6 199.9 230.5 (24) (21) (21) China178.6 143.7 122.7 (15) (12)(9)

Figures in parenthesis share in totalpopulation (%) Source: State of FoodInsecurityin the World2008,UNFAO,http://www.fao.org/index_en.htm

15.Thisnumberisarrived atafterconsideringLPGand keroseneasMES forcooking. Ifri, 2009

Shakti’savatars:WhichenergyforIndia? 87

Table 21. Potentialand installed capacity of renewable sources CapacityUtilized Unit CapacitybyJanuary 2007 Biogasplants Million 123.89 Biomass power Mw21881 1146.39 (agro residue,cogeneration) Biomass gasifier Mw–75.85 SolarenergyMw/km2 20 2.92 Small hydro Mw15000 1905 WindenergyMw45195 6315 Waste-to-energyrecoveryMw2700 51.98

Source: Ministryof NewandRenewable Energy(MNRE),http://mnes.nic.in/

andafinancing institution16 forthe development of renewable energy.While Indiahasyet to utilizeits large potentialof renewable energy(Table 21),having these institutions in place will actascatalyst in the process of future development. Total installedcapacityforrenewables in electricitygeneration is around9.5 GW (6.1% of the totalinstalledcapacityin the country). This sector assumes importancebecause it hasthe poten- tialtomeet householdelectricitydemandforruralIndiapartic- ularlyasstandalone systems.This will reducethe massive problems facedbyutilities andruralconsumers because of the centralizednature of gridbasedenergysupplyin ruralIndia. SEBshavenot been able to reach44% of the Indianhouse- holdsmore than60years after India’s independence. This becomes muchmore disappointing when welook atsucha level of deprivation against the governments of India’s target to electrifyall householdsbythe endof the year2012.Onthe other hand, ruralsupplyof electricityis the most important contributor to the losses of SEBs. The government is trying to promote renewable sources of energythrough variousfinan-

16.Thisfinancialinstitutionisregistered asIndianRenewable EnergyDevelopmentAgency (IREDA)Ltd. Since1987and operatesunderthe administrativecontrol of Ministry of Newand Renewable Energy(MNRE). Ifri, 2009

88 Energyin India’s Future:Insights

cialincentives in terms of high depreciation rate forcapital invested, interest rate discounts forloans andpricesubsidies at the time equipment is purchased.Butall these incentives are so complexandinformation-intensivethatendusers hardly haveanyideaaboutsuchincentives schemes17.The main impediments to the progress of these technologies are the common citizen’slackofknowledge aboutits proper functioning,andthe high upfront cost of these technologies.In addition to this,transmission utilities are directedto giveaccess to their gridto renewable generators atalower rate forthe purpose of transmitting power andthirdpartysales of power. Indiashouldmake the maximumuse of researchanddevelop- ment capacities available aroundthe worldanddomesticallyin this fieldso thatthe upfront costs of implementing these technologies couldbereduced.This hasbeen rightlyaddressedby the NationalAction PlanonClimate Change preparedbythe prime minister’scouncil on climate change (GoI2008). The problem with this industryis thatthe potential demandlies in apopulation whichispredominantlypoor.The problem does not lie in the inabilityof the poor to payforthe operating costs butduetothe lackofinnovativefinancial instrument through whichlarge upfront cost of implementing the technologycouldbeaccumulatedbypotentialcustomers demanders or loanedto them with sufficientlylowrisk of default. Onthe other handthe large sums of R&D expenditure in this sector are boundto yieldreductions of the upfront costs.Cust et al. (2007) giveadetailedsurveyof literature on the costs of different RETsoptions andtheir ownestimates.It is claimedthatthe unit cost of gridbasedsupplyelectricity increases byone rupee per kilometer.Therefore,asthe distanceofvillage to beelectrifiedincreases,so does the viabilityof RET basedoptions.This issueislargelyunsolved andis criticallyatthe center of the demo-energeticequation of India.Some newdevelopments occurinthis field, suchas the role localentrepreneurs play(describedlater in this chapter),buttheystill needto begeneralizedacross the economy.

17.Thisisbased on the coauthor’sownexperienceinplanningasolar-based lightingsystem forthe school of hishome village. Ifri, 2009

Shakti’savatars:WhichenergyforIndia? 89

After this micro look atthe nitty-grittyof the locallevel and the potentialfor change,wenowreturn to the larger picture.

Globalenvironmentand economytradeoffs India’s energyneedsare predominantlymet bycoal,which is the most carbon-intensivefossil fuel. Combinedwith the needto address the energymixmodernization formore than 70%ofits population,Indiabyanystandardfaces amuch bigger challenge thananyother countryatthis time.In absolute terms Indiais the fourth largest emitter after the UnitedStates,AustraliaandChinarespectively. Welackspacehere to describethe full debate in India, butwebelievecoalisthe paradoxthatforces the elite of the urbanclass to “twist the debate.” Itisincreasinglyheardin IndiathatIndiashouldbeexpectedto emit more CO2 asa legitimate right. This argument is promotedin front of western proponents of India’s moraldutyto self restrain even though greater ruralaccess to modern energyservices is key to India’s growth andeconomicsustainability.Itisincorrect to believethatthe current trendis asaving grace. Ifwedisag- gregate average figures,then the current scenario favors an urbanelite thatconsumes amounts of energyper capita comparable to those in anyaverage developedcountry. Let usexamine this with further data.Inper capitaterms Indiaranks lowest among the countries listedin Table 22. Inorder to haveanideaof the extent to whicha country/region is responsible forexisting level of CO2 on earth’satmosphere,Table 23presents cumulativeemissions from year1900 to 2002 (the 20th century). Industriallyadvancednations are largelyresponsible for the stockandexisting emissions levels.However,it wouldnot sufficeeven if these countries were successfulinarresting

their future CO2 emissions.Large developing countries like IndiaandChinaneedto significantlychange their mode (technology)ofproduction forlong term sustainabilityof this earth (Pachauri 2004); e.g.,greater use of RETsinruralareas to providemodern energyservices will offset India’s Ifri, 2009

90 Energyin India’s Future:Insights

Table 22.PercapitaCO 2 emissions(tonsperperson peryear) Country198019901995 2000 2004 Brazil 1.5562 1.40231.6022 1.85821.8001 China1.4794 2.0892 2.63622.6295 3.8393 Germany13.7455 12.350510.1692 9.70429.7881 India0.5047 0.7932 0.9594 1.104 2 1.2023 Japan7.8847 8.67249.07059.5441 9.8434 Russia12.7245 12.8165 10.0891 9.9761 9.9896 UnitedKingdom 10.4275 10.1281 9.8276 9.8543 9.7934 UnitedStates 20.0486 18.8256 19.2757 20.9293 20.3792

Source: UN StatisticsDivision.

Table 23.CumulativeCO2 emissions,1900 to2002 Country/Region CO2 Emission Share in CO2 Emissions Unit Million MetricTon (%) Europe387319.5 37.71 Australia11213.6 1.09 China80803.7 7.87 India23083.4 2.25 Japan43662.1 4.25 UnitedStates 303033.6 29.50 World1027063.3 100.50

Source: WorldResourceInstitute,http://earthtrends.wri.org/

disadvantage on the environmentalfront. This disadvantage is primarilycausedbythe predominant use of coalandpoor ruralaccess to modern energyservices.Ifasignificant amount of India’s energyrequirement is sourcedfrom renewable resources it maycontinuetodependon not-so-environmen- tallyfriendlydomesticcoalreserves.The dividendsthatwill bereapedfrom amassiveuse of renewables on the environmentalfront canbeusedto compensate forthe damage that will bedone duetothe use of coal. This wouldmeananIndia thatwoulddependless on internationalcrude,leading to stab- ilization of energypriceathome andin the world.The massive role thatRETscanplayin ruralareasfor lighting,cooking and irrigation,wouldheavilyreducethe demandforconventional power from coal/gasplants andLPG anddiesel. Inquantity terms one canimagine that30%(173.3 Mtoe in 2007) of the totalprimaryenergyconsumption in Indiais sourcedfrom Ifri, 2009

Shakti’savatars:WhichenergyforIndia? 91

noncommercialenergysources to meet the ruralrequirements —at60%ofefficiency,totalnoncommercialenergyconsump- tion requirement of 2007wouldreduceto46.21Mtoe, implying asaving of 127Mtoe assuming 16% ascurrent level of effciency.The efficiencyof these noncommercialenergy sources varies from 8% to 16%. Replacing noncommercial energyuse with renewable sources thathaveefficient utilization factors will provideanimmense leverage to Indiato be able to use coalasanimportant sourceofenergyin the longer term. This is verycrucialsoasnot to offset the efforts of industriallyadvancednations to curbtheir emissions. Conversely,here wedonot implythatthe entire burden of greenhouse gases reduction shouldbeonruralpopulations. However,the (fortunately)growing outlook on greater urban efficiency,or the technologicalideastomovetowardanultra- supercriticalcoalplant in combinedheatplant (CHP)confi- guration shouldnot overlook the issueofthe ruralpoor.The future laysinputting the burden on the monetizedeconomy, butalso on providing the poor with the tools,systems,and micro-institutions of renewable energy;the former will sooner or later see private actors emerging atthe micro level,atthe residentialcolonyandfactoryenergeticoptimization level,but the developmentalstate andthe publicaidshouldnot neglect the latter.Itwill needto beacollective,cooperativegame,or therewill benogame atall.

Povertyand climatechange Ifbig emerging countries likeIndiaandChinadonot change their modeofproduction now,the economicgrowth thatisgraduallylifting people from the shackles of poverty maycause still more povertyin the future; forinstance, climaticcatastrophes are expectedto affectthe poor dispro- portionately.This is in part because the poor population in Indiais dependent on the monsoons fortheir agricultural output. Erraticandconcentratedrains cancause flooding and drought with higher frequency.Although there hasbeen much focusinthe mediaandin the NationalAction PlanonClimate Change (GoI2008) aboutsea-level rise andcoastalpopulations being displaced, the interior of the countrywill also see its share of water refugees asclimate andenvironments change. Ifri, 2009

92 Energyin India’s Future:Insights

Last year’sprolongeddrought in the Bundelkhandregion and catastrophicfloodof the Kosi river in NepalandBiharledto amassivedislocation of people in the affectedareas. The IntergovernmentalPanel on Climate Change (IPCC)predicts thatsub-SaharanAfrica will bethe biggest loser in agricul- turalproductivityduetoclimate change followedbyLatin America, the Middle East andNorth Africa, andAsiarespec- tively.Onthe other hand, Industrialcountries in the aggregate standto gain in agriculture productivitybecause of climate change (IPCC 2007). Inaddition to this,climaticcatastrophes likestorms andfloodare onlygoing to increase in future with dire consequences forthe asset bases of the most vulnerable populations.Floodscausedbyerraticmonsoon rains and storms in South Asiaduring 2007season displacedmore than 14 million people in Indiaand7million in Bangladesh (UNDP 2007Ch. 2). The cyclones of Myanmarin2008with 100,000 deaths18 andOrissa(India)in1999 with 10,000 deaths are constant reminders of this reality.Therefore,simplisticviews of growth andpovertyrelationship canbedangerously misleading. Indiaalso faces massiveproblem of emissions andwastes thataffectthe localenvironments in both ruralandurban areas. Inruralareasemissions are mainlyduetoveryineffi- cient burning of bio-fuel forcooking.InUrbanareathe problems are emissions from transport andindustrialwastes. Water andair pollution impose heavy health costs,with a disproportionate biasagainst poor women andchildren. Most of the time,andasindicatedearlier,providing them with modern energyservices increasinglythrough renewable energysources turns outtobethe most cost effectivetool. This approachprovides atriple dividend: •Itleadstolowemissions, •Nonetwork facilityis required, so it avoidsthe problem of complexwebof institutionalcost (corruption and theft) whichiswhygridfacilities havenot been able to reachmost poor population of Indiayet.

18.http://www.msnbc.msn.com/id/24497236/ Ifri, 2009

Shakti’savatars:WhichenergyforIndia? 93

•Itdirectlyaffects the humandevelopment aspects of most poor populations living in villages in India.

Roleofthe internationalcommunity Inorder to tackle the challenge of climate change,developedcountries not onlyneedto curbtheir ownemissions but also persuadethe developing countries to change their mode of production withoutprejudicetotheir growth. The inter- nationalcommunityhastopersuadeIndiato followpolicies thatpromote equaldistribution of income so thatthe GDP growth will haveprogressiveaffectonthe reduction of poverty.Bringing aboutanychange in the modes of production anddistribution of wealth is going to facemassiveoppo- sition because of existing lobbies andinterest groups in the country.The usualdiplomacyof suasion or top-downdiplo- macyis less likelyto work. This maybecontroversial,butwebelievethatIndianeeds to bepersuadedto promote those policies thatdirectlyaffect the HDI score of the country,i.e.,byincreasing access to modern energyservices,particularlyin ruralareasand bringing aboutenergyefficient technologicalchanges in the industrialsector to reduceenergyuse andemissions.There will beanimmense opposition to suchachange from groups whose economicinterest is tiedto the oldmodeofproduc- tion. The internationalcommunityhastounderstandthe strength of the interest groups/lobbies thatsupport and oppose suchchanges.Unruh(2000)beautifullyelaborates that the relativestrength of interest groups thatsupport change must behigher thanthatofthe groupthatopposes the change. Therefore,strategyshouldfocusoncreating/promoting the interest groups thatwill support the change anddiscourage the groups thatoppose the change,instead of directimple- mentation of the policy.This canbedone byworking with domesticacademicgroups,civil societyorganizations andthe business community.Academicinstitutions in Indiaplayan important role in policymaking.Civil societyorganizations likethe Center forScienceandEnvironment in Delhi canhave asignificant impactonpublicopinion,whichtranslates into voting pattern of the people,andthenceinto the government Ifri, 2009

94 Energyin India’s Future:Insights

policy. 19 Businesscommunities canbemotivatedbythe new economicopportunities.Theymayconsider entering into these ventures of technologicalchange asfirst movers’ advantage.This will inducethem to lobbyforfiscal/financialconces- sions forinitiating suchprojects.This canbesuccessfully achievedbyworking closelywith some industryassociations, including the Confederation of IndianIndustry(CII).20 Channels to work forchange alreadyexist butactivities in these channels needmassivescaling upbythe international community,e.g.,Australiancleantechnologyfirms are already gearing uptoinvest in India. 21 IfIndiais successfulinbringing aboutthis change it will contribute to saving its large vulnerable population from being victims of naturaldisasters andwill gain lots of valuable credits of future emission reduction targets under the Kyoto Protocol.

Conclusion The nationalandglobalmacro scene of India’s energy scenario is intimatelyconnectedto micro-equilibriums,local socialandeconomicalbalances.This suggests the potentialfor half-influencing,half-collaborativecivil societyanddiplomatic moves that,webelieve,go in amore subtle waythanusual recommendations. 22 This suggests enough the complexity(in the EdgarMorin meaning of the term),andeven the societal dimension of the issueofenergyin India. This implies alearning process asthe consensusfor an inclusiveapproachisnot yet reached. With this asasubtext,wecanseparatelyexplore the answers andprocesses in whichthe energysector andits varioussubsectors are engaged.Inthe secondpart,westart

19.The CenterforScienceand Environmenthasbeenvery effectiveinformingpublicopinion in recenttimeson environmentalissues. 20.Thisorganization,along withUNIDO, hasalreadylargelyengaged intoprogramstosupport energyefficiencyin Small Scale Enterprises. 21. CleanTechForumofAustraliaisvery activelypursuingthe Indiamarket,http://www.

cleantechforum.com 22.InFrance,forinstance,comparewiththe “Vedrinereport,”released in September2007, thatmostlyattempts tobuildanoverall “powerrelation” withemergingcountries. Ifri, 2009

Shakti’savatars:WhichenergyforIndia? 95

from the “sectoral” andindustrialapproaches,then examine internationalanddiplomaticissues of energysecurityand finally,in the thirdpart,present some corporate measures we believecouldhavestructuralpotential.

Sectoraland internationalissues Underthe shadowof China?Indianinternationalenergyprojection Energyis parexcellenceageostrategicsubject. Itissonot onlyforthe concernedcountry’s securityandexternal economicimplications,butithasalso become so in acontext of internationalnegotiations anddebates on issues of the globalcommons suchasgreenhouse gasemissions.The first series of concerns is enough to fill books foranycountry; while the secondforacountrylikeIndiais even more over- whelming.Sothe balancebetween the urgencyof the two issues shouldbereflectedin the strength of the powers and tools thatcanbedeployed. Contraryto the wisdom of the day,wearguehere thatIndia is not suchanurgent case.Itisnot alost cause,asfirst part has demonstratedthatbalancedandinclusivepolicies offer away outofcurrent concerns.Nor is it aquantitativeimmediate threat,especiallywhen comparedto Chinese greenhouse gas emissions. Inthis contextthe geostrategicalimplications of Indian energyare twofold.Indiais not just aclassicalcase of sourcing andsecuring energy.Tothis must beaddedthe waysand means of integrating the Indianenergyscenario into aglobal debate on the common issueofglobalenvironmentalsustain- ability.Itbecomes more anopportunityforboth technicaland soft diplomacythanthe usualcoercivediplomacy.India’s securityissues of todayraise manyoverarching diplomatic issues in the extendedregion.

Preamble:Mythand realitiesof India’sgrowthand environmental issuesviz.China

Scholars andthe mediaroutinelyuse the phrase “and India”when dealing with Chinaon energyprices,emissions Ifri, 2009

96 Energyin India’s Future:Insights

andgrowth. Wewant to clarifyhere thatthough theymight becomparable in terms of population these countries are far apart in terms of their level of economicactivities,energy uses,povertyburden andemissions.China’s per-capitaGDP is more thandouble India’s.The Indianshare in the total primaryenergyconsumption of the worldis just 3.9% while China’s share is 15%. Theydonot occupyatall the same position nor modeofinsertion in the worldeconomyandworld system of production. Chinahasanexport-basedeconomy. More than40%ofChinese manufacturedimports and56% of its manufacturedexports are basedon assembling or semi- processing goods. This is highlylabor andenergy-intensive, usuallyformiddle andlower value-addedgoodsthatcomprise nearly90%ofthe Chinese manufacturedexports.The energy intensityof Chinese export activityis quite high,andthough it represents ademandon the globalproduction system—as it is ultimatelyaimedatexports—it is locatedin China.One couldcompare this to the “water exports equivalent” that agribusiness countries start accounting in their foodexports. This “energycontents in exports” explains animportant part of the high primaryenergydemand.The factthatthe Chinese government trades this off with unemployment butisaware of the sideeffects or the factthatthe demographiccurvewill allowit all the while resenting the strategyandcurtailing its energyintensityleadstoaclearconclusion:the Indian economyis quite different.

Further,Indiahouses close to 33.12%ofthe totalworld’s poor,while Chinahouses to 13.17%. China’s cumulativeemissions,since1900 to 2002 are fourtimes higher thanIndia’s. For amore detailedcomparison of IndiaandChina, one may refer to chart book preparedbyDeutsche Bank Research (2005). Therefore,one must becautiousinputting these two countries into the same shoes,extending to Indiathe issues of the Chinese case,usuallybetter knowntothe general publicand“generalenergyexperts” who look atmacro figures.Wehaveamplydiscussedthe specificityof Indian

domesticissues.This specificity,weargue,shouldalso be factoredin the analysis of India’s internationalenergyscene. India’s presenceinglobalenergymarkets is mainlyforits oil Ifri, 2009

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andgasrequirements,asitimports nearly75% of its total requirement.

Energysecurity:Equity oil,pipelinesand nucleardeal CurrentlyIndiais trying to diversifyits supplysources for oil andgasfrom the Gulf region23 to minimizeits vulnerability to supplydisruptions duetopoliticalinstabilityin the Middle East. Ithasbeen trying to buildrelationships all aroundthe world(see Box1). Indiais using almost all the tools available to secure oil andgassupplies forits future needs. This can either beachievedbylong-term contacts with energyexporting countries,or bydirectlyinvesting in exploration andproduction of oil andgasinresourcerichcountries. Equityoil Oil andNaturalGasCorporation’s(ONGC),anational exploration andproduction company,overseassubsidiary ONGC Videsh Ltd(OVL)isthe main organization activein Africa andSouth America.Indiahaslongtermcontacts on supplyof oil with IranandQatar,aswell aslong standing Gas projects.India’s pursuit of oil andgasfaces stiff competition from China.Chinahasbeen able to strikedeals with more success in comparison to India.Over time,however,Indiaand Chinahavelearnedto cooperate with eachother andhaveeven startedbidding forblocks jointly(Vardarajan2006a, see Box1). OVL, in meeting India’s future energyneeds,does not compromise on economicprudenceofprojects to pursueother objectives,putting Indiainto diplomaticallydifficult situa- tions.For example,Indiarefrainedfrom providing vocal support to the pro-democraticforces during the Myanmar crisis of September 2007duetoits energyinterests.This seri- ouslyhurts India’s long-standing image asanuncompromising nation forhumananddemocraticrights in the world— achievedduring the nonalignment movement—andleadsto seriousnationaldebates on the issue. Indiais also criticized forits participation in the Sudanese projectwhichprovides support to the Khartoumregime.

23.Gulf regionaccounts for65% of India’scurrentimport of crude. Ifri, 2009

98 Energyin India’s Future:Insights

Box1 BriefProfile of ONGC Videsh AsofJanuary2007,ONGC Videsh holdsinterests in 25oil and naturalgasprojects in 15 countries,spanning Africa (Sudan,Libya andEgypt),Asia(Russia-Sakhalin),Kazakhstan,Vietnam,Myanmar), Latin America (Brazil,Colombia, VenezuelaandCuba),andthe Middle East(Syria, Qatar,IranandIraq). One of ONGC Videsh’smost high-profile investments is its share in the Greater Nile Petroleum Operating Company(GNPOC),whichhasengagedin E&P work in Sudansince1997. ONGC Videsh acquireda25% equitystake in the companyin 2003,with the balanceheldbythe ChinaNational PetroleumCompany(CNPC, 40%),Petronas(30%),andthe Sudan NationalOil Company(Sudapet,5%). The GNPOC acreage in Sudan holdsprovedcrudeoil reserves of more thanone billion barrels,and current production levels from the eight main GNPOC fieldsexceeds 300,000 barrels of oil per day.Inaddition to the upstreamactivities, the GNPOC companies operate a935-mile crudeoil pipeline that pumps oil to Port Sudanfor export. ONGC Videsh also holdsa20%stake in the ExxonMobil-led consortiumthatoperates the Sakhalin-IprojectinRussia.According to companyestimates,the oil fieldsassociatedwith Sakhalin-Ihold recoverable crudeoil reserves of 2.3 billion barrels.Production at Sakhalin-Istartedin October 2005,andis expectedto reach250,000 barrels/dayin early2007. Oil from the Sakhalin-Iprojectwill be pipedwestwardto the DeKastri terminalonthe Russianmainland forexport,while some crudeoil will also bepumpedinto Russia’s domesticpipeline system forlocalconsumption. Recently,OVL hastakenover the British energycompany, ImperialEnergy,forUS$ 2.6 billion. Imperial,whichhasoil assets in Siberiaandnorth Kazakhsthan,currentlyproduces around10,000 barrels/day.Ithopes to increase the production to 35,000 barrels/day bythe endof 2009and80,000 barrels/dayby2011. Source: http://www.eia.doe.gov/emeu/cabs/India/Oil.html

Pipelines Pipelines offer asustainable,least-cost option for procurement of oil andgasunder manycircumstances.Mani Aiyer Shankarinhis time asminister of petroleumand naturalgasbecame obsessedwith ideasfor pipelines.Plans to buildthe pipeline from Iranthrough PakistantoIndia(IPI) Ifri, 2009

Shakti’savatars:WhichenergyforIndia? 99

were almost suspendedbecause of U.S.pressure butappear to havegainedatleast rhetoricalmomentumrecently.The pressure during 2006wassohigh thathehad to beremoved from the ministry(Vardarajan2006b)because Indiahad to chose between adubiouspipeline andasecured, global, commerciallyandstrategicallyfar-reaching nucleardealwith the UnitedStates.Inaddition to this,Indiawent to the extent of voting forsanctions against Iran,its historicalally,for uraniumenrichment programinInternationalAtomicEnergy Agency(IAEA)boardmeeting.Although Indiaof course does not want amilitarynuclearIran,NewDelhi circles fully understandthe claims forenergysecuritydevelopedbytheir regionalneighbor. Another pipeline possibilityforIndia, a1,680km pipeline costing aroundUS$ 3.3 billion to secure gassupplies from TurkmenistantoIndiaviaAfghanistanandPakistan,is also hanging andequallyimprobable.The Taliban’sinfluencein the border areasofAfghanistanandPakistanposes risks for suchaninvestment. Inaddition to this,India’s relation with Pakistanalso makesthe negotiation costlyanddifficult (Verma 2007). Myanmarisyet another sourceofgasfor India, andit fits well with India’s “look east” policy.Alternativeroutes for laying downthe pipeline are either through Bangladesh or India’s northeastern states.Itmaylook costlyto dealwith Bangladesh andcouldwell yieldgreater benefits in the future, because it is believedthatBangladesh haslarge untapped sources of gas. ButBangladesh is politicallyunwilling to contemplate apipeline thatcouldbeseen asexploiting Bangladeshi gasfor Indiain the absenceofaglobaleconomic dealbetween the twocountries.Onthe other hand, routing a pipeline through the northeastern states of Indiais highly riskybecause of the low-intensitybutrecurring insurgent problem in these areasofthe country. Among all these possibilities,the IPI pipeline seems the most interesting forIndia.This pipeline wasinadormant stage till recently.With aperson likeHamidAnsari,former Indianambassador to Iran,asthe vicepresident of India, interest in this pipeline couldbereactivated.Atthis writing Ifri, 2009

100 Energyin India’s Future:Insights

wehavealreadyseen some strong possibilities forthis pipeline.The minister of oil andnaturalgas,M.Deora, visited Pakistanin2008tofinalizethe modalities just before Iranian President M.Ahmadinejad’s visit to Indiaspecificallyto discuss this pipeline.The test of all of this politicalby-play will bewhether anyone seriouslyoffers gas(whichisnot currentlyavailable) atapriceandadate fordelivery. Separately,the UnitedStates hasagreedwith Indiaon a dealincivil nuclearenergy,thathasbeen ratifiedbyall rele- vant nationalandinternationalauthorities.This hasbeen a major accomplishment forPrime Minister ManmohanSingh. Nucleardeals The Indo-U.S.nucleardealhasbeen in the world’s head lines formonths if not years.The newsisthatthe UnitedStates is cooperating with acountrywhichhasnot yet signedthe NuclearNon-Proliferation Treaty(NPT),atvariancewith current U.S.law.This means thatthe U.S.lawregarding nonproliferation will havetocreate anexception forthis deal. This might givelegitimate reasons forother countries of NuclearSuppliers Group(NSG)tocooperate with other non- NPT signatories on nuclearissues,likeChinato Pakistan, Russiato Iranandetc(Einhorn 2005). According to the Pellaud Committee (Vardarajan2006c),Indiais one of those developing countries thathaveachievedcomplete masteryover the front andbackendsofthe nuclearfuel cycle.Weare less convinced bytheir masteryof the backendof the fuel cycle asnoone has satisfactorilydemonstratedthattothe satisfaction of their citizens.Inadditiontothis,the IAEA hasappreciatedIndia’s safetyperformanceinhandling nuclearmaterialandachieving averylowprobabilityof accidents24 .Indiais seeking the neces- sarytechnologyandfuel supplies to add substantialcapacity forpower generation. This couldsignificantlyreducethe future globaldemandforgasandfuture emission of CO2 asnuclear displaces coal. The worldatlarge seems to begaining outof this dealinterms of fossil fuel markets andCO 2 .Butits impli- cation forproliferation maybenegativerather thanpositive,as opposedto whatisusuallyclaimedbyIndiaandthe United

24. http://www.thehindu.com/2008/05/01/stories/2008050158150100.htm Ifri, 2009

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States.Indiahasalwaysremainedfirm on its unwillingness to sign the NPT andhasexcludedmanyfacilities from IAEA inspection. The question is to whatextent will these exceptions undercutthe integrityof the NPT andinduceother non signatories to seek similartreatment? Indiahasalreadystruckamultibillion-dollardealwith Russiain February2008tobuildfourmore reactors in the South. This dealwill take off oncethe NSG lifts its embargo of nucleartradewith India, also necessaryforactivation of Indo-U.S.nucleardeal. The maximumcontribution thatis expectedfrom nuclearininstalledcapacityforelectricity production is just 10%. Therefore the reduction in emissions is fairlymodest. Finallythe Indo-U.S.nuclearagreement is in place,since India’s communist parties,whichleft the coalition in the last term of the government to protest the deal,donot playany role in forming the current progressivealliance. The main partyof the coalition thathasruledIndiasince2004,the Congress-I, forquite some time didnot want to go ahead with the dealinParliament because of the risk of losing this ally andof facing adissolution of the Parliament. The Congress-I finallywent ahead atthe earlyautumn 2008,having secured atinymajoritywith newallies.Interestingly,the opposition parties mayhavebeen opposedon the nuclearmatter,butit waslittle secret thattheyultimatelyfavor astrategyof getting “closer to the U.S.” There is definitelyamajorityin the countryin favor of the deal,even though this majoritydoesn’t correspondto anyof the possible ruling coalitions.Asmany issues that“cutacross” the Indianpoliticalexchequer,despite being votedwith difficulty,it shouldbeimplemented smoothly.

Sectors and marginsof industrialreorganization India’s commercialandformalenergysector is beginning to evolveasacompetitivestructure,from asituation of state- ownedadministrativedepartments.India’s energysector has become one of the cornerstones of the India’s economic Ifri, 2009

102 Energyin India’s Future:Insights

reforms sincethe 1990s. Though state ownership is still dominant,different agencies in the valuechain havebeen gradu- allyreshaping themselves ascompetitivecorporate entities. Though slowly,these state ownedenterprises are increasingly adapting to operate under amarket orientedframework comparedto the administrativestyle functioning before the 1990s(Ruet 2005). Market development andalternative economicreform policies havechangedthe set of incentives forgovernment ownedenterprises whichnowactmore like independent strategicfirms andless likegovernment depart- ments. After the liberalization of the 1990s,private ownership also begantoemerge in the fuel supplychain,albeit unevenly: •The rise of large private actors is definitelymore pronouncedin oil thanelectricityor coal. Within the overall energysector,electricityhasseen the largest change. •Within states,the poorest states with the lowest institu- tionalcapacities andprivate players haveexperienced the fewest changes (one notable exception is the very poor state of Orissa, whichprivatizedits electricitydistribution in 1999,resulting in amanagerialandregulatory failure (Siddiqui2007). Recapping the sectors:The electricitysector hasexperi- encedthe most intensivereforms.This ledto increasing private ownership particularlyin generation (nearly24% of thetotalinstalledcapacity 25 ). Inaddition to this twostates, OrissaandDelhi,haveprivatizedtheir distribution system with only49% of the asset valueremaining with the respectivestate governments (respectivelyin 1999 and2002). The oil andgassector hasalso been significantlyliberal- izedto augment domesticproduction. Most of the distribution (retail sector) is still operating under government control though there is apresenceofprivate distributors ownedby RelianceEnergygroupinfewstates.Inexploration and production (E&P)activities the state remains the dominant

25. Includesthe captivecapacity added byindustriesprimarilyfortheirownuse. Ifri, 2009

Shakti’savatars:WhichenergyforIndia? 103

player butrecentlyprivate players havebeen successfulin winning bidsfor E&P (notablyRelianceinthe Bayof Bengal). IndianOil andONGC, whichare state companies,are also very activeindeveloping internationalpartnerships in resource richregions aroundthe world. The refinerysector hasalso been liberalizedandthere are twomajor private players with asignificant share of the total refinerycapacity. The coalsector hasseen byfarthe least changes in terms of market orientedreforms andremains embroiledin localpolitics.

Coalsector Itisthe most important component of India’s energy requirements.The Fuel PolicyCommittee (1970),ledbythe famousIndianeconomist ShukhamoyChakraborty, 26 emphat- icallyarguedthatcoalshouldbethe main sourceofIndia’s energyneedsasitisthe most reliable andcheapest fuel. The coalsector27 wasnationalizedthrough variouslegalmeasures during the first half of the 1970s(Ministryof Coal-MoC 28 2005p.9). This nationalizationwasjustifiedon the groundsof inadequate investment,unscientificmining practices andpoor working conditions forlabor.This nationalization took place in abroader waveofnationalization in manysectors during the rule of Prime Minister IndiraGandhi.29 Following

26.Hewasoneofthe architects of IndianplanningimmediatelyafterIndia’sIndependence. 27.Coalresourcesareoftwodistinctlydifferentcategories,cokingand noncoking(also referred toasthermal/steamcoal). Our resourcesof cokingcoalused in steeland other metallurgicalindustriesaremeagerand of relativelypoorquality.Incomparison,high ash, lowsulphur and lowcalorificvaluenoncokingcoalresources,whicharebest suited for thermalpowergeneration,exist in fairlyabundantquantities. 28. The Ministry of CoalhaspublishedaReport of The Expert Committee on CoalSector Reforms,headedbyT.LShakar,in twopartshttp://coal.nic.in/welcome.html 29. Thiswaveofnationalizationinvarious sectors of the economywasmotivated bya famous studybyR.K.Hazari. Hefound thatthe growthofthe economywasnotbeing distributed evenly.Even though hisproposaltosolvethisproblemwasquitedifferentfrom nationalizationand industriallicensing,the politicalestablishmenttookhisstudyasapretext tostart licensingand nationalizationofindustries.Thisperiodalsoexperienced abulk of affirmativeactionsasapart of the famous programinitiated byIndiraGandhi famously coined “GaribiHataoAndolan” (removepovertymovement). Thiswasamajordeparturefrom

the Nehruvianframework. Nehru’svisionofstrongstatesectorwithduerespecttofunda- mentalrulesof marketforceswasreduced toastrongstatesectorwithout anyrespectto marketforces. Ifri, 2009

104 Energyin India’s Future:Insights

Table 24. Production of coal(million tons) 1970-71 1980-81 1990-91 1995-96 2000-20012004-05 CIL 17.85*100.86 189.68 237.27268.14 323.58 SCCL 10.1 17.71 26.77 30.2735.3

TISCO/IISCO/ DVC/ 55.1 3.056.47 9.38 15.2923.74 Private/Captive Mines

Total72.95 114.01213.86 273.42313.7 382.62 *NCDC andSCCL only.Source:MoC(2005).

Nationalization,the coalindustrywasreorganizedinto major publicsector companies,namelyCoalIndiaLimited(CIL) whichowns andmanages all the oldgovernment-owned mines of NationalCoalDevelopment Corporation (NCDC)and the nationalizedprivate mines,andSingreni CollieryCompany Limited(SCCL)whichwasinexistenceunder the ownership andmanagement of the AndhraPradesh State Government at the time of the nationalization. Sincethen this sector hasremaineddominatedbygovern- ment ownedorganizations (Table 24). Legalprovisions were createdin 1976 andsubsequentlyin 1993 to allowcoalmining forcaptiveend-use in steel,power,cement production,andto permit the exploitation of isolatedsmall patches byagencies approvedbytheir respectiveState Governments.Growth in captivemining is restrictedbecause of variousadministrative hurdles regarding landacquisition andenvironmentalclear- ances.Inaddition to this,captiveminers are not eligible to sell their over production in the open market. Growth in coaldemandhasoutstrippedthe growth in supply.The coalsector of Indiaremainedlargelyuntouched byreforms,andis subjecttosignificant competition from foreign suppliers,particularlyfrom Australia.The major users of coal,i.e.,the electricitygeneration industryandthe steel industry, 30 havebeen complaining aboutthe lackofcompeti- tivesupplyfrom domesticproviders both in terms of quantity andquality.Asaresult of this,domesticusers of coalhave

30.The highest claimantof coalisthe electricity sector(73%),followed bysteel(9%). Ifri, 2009

Shakti’savatars:WhichenergyforIndia? 105

Figure15. Netimportsof coal NetImportofCoal 40 35

30 25

ns 20 To

on 15

Milli 10 5

0 1 3 5 7 9 1 3 5 7 9 1 3 5 7 9 1 3 5

-5 -7 -7 -7 -7 -7 -8 -8 -8 -8 -8 -9 -9 -9 -9 -9 -0 -0 -0 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 Source: Ministryof StatisticsandProgramImplementation (MOSPI),http://mospi.nic.in/

shiftedto Australiansuppliers.This surge in imports (Figure 15),even though there are sufficient reserves athome to meet demand, hasputthe government under tremendous pressure to introducechanges in the coalsector.Asyet,little hasbeen done.

Oil and gassector According to Oil &GasJournal(OGJ),Indiahad 5.6 billion barrels of oil and38 trillion cubicfeet (Tcf) of gasinproven reserves asofJanuary2007,the second-largest amount in the Asia-Pacific region,behindChina.The combination of rising oil consumption andfairlystable production levels (30–34 million metric tons (mmt)) leaves Indiaincreasinglydependent on imports (70%oftotalrequirement) to meet its consumption needs. Regulatorytrajectory Afirst phase canbedescribed 31 over 1971–1991. Ashift occurredduring 1970sfrom the principle of import parityin pricing forthe oil industry,to anadministeredpricing mechanism (APM)with command-and-control instruments usedto control the prices of the crudeaswell asthe finishedpetroleum products.Consequently,policies were introducedto attract private investment andtechnologies in the exploration and

31. Thissectiondraws from Menon-Choudhary and Shukla(2006),in Ruetand Huchet (2006). Ifri, 2009

106 Energyin India’s Future:Insights

production (E&P)activities so astosupplement the efforts of the nationaloil companies (NOCs) even though there continued to beapreferentialtreatment forNOCs. Foreign oil companies suchasBurmahShell,ESSO,CaltexandIndoBurmah Petroleum,whichvirtuallycontrolledthe Indianoil industry, especiallydownstream,were nationalizedbythe government. Since1991,the government hasembarkedon aseries of policyreforms designedto deregulate the sector andpromote private participation. More thanthe rise of demand, the stagnation of production hasbeen worrying.The main reason for aslow-downinsupplyis the decline in existing oil andgas fields. Indiaproduces approximately820,000 barrels of oil per day(b/d),of whichabout55% comes from the giant fieldof MumbaiHigh andits satellite fields; 18% from onshore fields in Gujarat; and14% from the northeastern states of Assam andNagaland.The production of the Mumbaioffshore is declining sincethe fieldhasbeen in production fornearly30 years (efforts are on forenhancedrecovery). Asaresult of the shortage in supply,there hasbeen arise in imports,which currentlyaccount fornearly70%ofoverall consumption and are expectedto growin the future (see Figure 16 andFigure 17). Apolicydocument,the Hydrocarbon Vision 2025,was formulatedbythe Government of Indiato laydownthe guiding policies forthe hydrocarbons sector forthe next 25years.According to this document,the objectiveofthe policies in the oil andgassector wouldbetoachieve“energysecurity,stabilityandsustainability.” Some of the significant guidelines in the document includethe following: •Exploration andproduction segment:Complete appraisalofsedimentarybasins,absorbing/updating technologies,zero environmentalimpact. •Refining andmarketing segment:development of a globallycompetitiveindustry,creation of afree market andhealthycompetition,setting upofacommon regu- latorymechanism fordownstreamandnaturalgas. •Naturalgas:to become the preferredfuel forthe future, bridge demand-supplygapthrough imports of pipedand liquefiednaturalgas. Ifri, 2009

Shakti’savatars:WhichenergyforIndia? 107

Figure16.Demand-supplygap:Crude oil

Source: Hydrocarbon Vision 2025,Government of India.

Figure17.Demand-supplygap:Naturalgas

Source: Hydrocarbon Vision 2025,Government of India.

Thus,the demand-supplygaphastobeaddressedthrough large investments,both of capitalandtechnology,so asto boost production levels andmeet growing demand.That leaves alarge scope open forprivate sector participation. But wecanconsider that,asofnow,this sector is still highlyregu- latedeven after its (moderate) efforts to liberalization during the early1990s. Ifri, 2009

108 Energyin India’s Future:Insights

The sector todaycanindeedbedividedinto three vertical stages:exploration andproduction,refinery,andretail marketing. Exploration andproduction sector Exploration andproduction (E&P)ofoil andgasinthe economyis dominatedbystate-ownedenterprises,although the government hastakensteps in the recent years to deregulate the hydrocarbons industryandencourage greater private/foreign involvement. India’s state-ownedOil and NaturalGasCorporation (ONGC)isthe largest oil company, andalso the country’s largest companyoverall bymarket capi- talization. Government of India’s holding after issuing of shares in ONGC is 74.1%.32 ONGC is the dominant player in India’s upstreamsector,accounting forroughlythree-fourths of the country’s oil outputduring 2006followedbyOil India Ltd(OIL),another GoIownedcompany(Table 25). Inorder to boost hydrocarbon explorations in the country,the Government of IndiaintroducedaNewExploration Licensing Policy(NELP)inthe year1997–98. The main objectiveofthe NELP is to attractthe latest technologyandinvestment in exploration from nationalorinternationalE&P companies. 33 Companies likeReliance,Cairn Energy,British Gas,EssarOil, Videocon,PrizePetroleum(50%stake in PrizePetroleumis ownedbyaGoI-ownedcompany,etc.),are engagedin the exploration andproduction (E&P)ofoil andnaturalgasinthe country.Ofthese,Reliancehasdiscoveredthe most oil and gasresources in the deep waters of the Krishna-Godavari basin. The peakgain from the twofieldsisexpectedto be around9,400 b/dandthe gasproduction,2.7 mcm/d(million standardcubicmeters per day). India’s searchfor reliable supplies of oil andgasfrom abroad hasmotivatedher to acquire equitystakesinE&P projects overseasthrough overseasinvestment arms of National Oil companies.ONGC’s subsidiaryONGC Videsh is the most significant of them,asdiscussedearlier (see Box1,page 98).

32.http://www.rediff.com/money/2004/mar/05ongc.htm

33.Until the year2008,110blockshavebeenawardedunderfiveroundsof NELPbidding. Fifty-fiveblockshavebeenoffered underNELPVIround of bidding. The seventhround of NELPisalsoinprogress with57blockson offer. Ifri, 2009

Shakti’savatars:WhichenergyforIndia? 109

Table 25. Majorcorporatecrude oil and naturalgasproduction in 2007 (in Mtoe) CompanyCrudeOil Gas Grand OnShore Off Shore TotalOnShore Off Shore Total Total OIL 3.11 03.11 2.080.00 2.085.19 ONGC 8.0617.99 26.055.41 15.2420.65 46.70 JVC/Private 0.16 4.67 4.83 1.045.44 6.48 11.31 Total11.33 22.66 33.99 8.53 20.68 29.2163.19

Source: Modifiedfrom Ministryof PetroleumandNaturalGas(MoPNG),http://www.petroleum. nic.in

Refinerysector The refinerysector hasseen significant development in terms private sector participation. Bythe endof March2007, twoprivate players,RelianceRefineryatJamNagar,Gujarat (operating since2000)andEssarOil LimitedatVadinar, Gujarat(operating sinceNovember 2006) ownednearly22% and7% of the totalinstalledcapacity(149 million tons) in the countryrespectively.India’s share in refineryinstalled capacitywas3.4% of the worldtotalin2005. Duetosignifi- cant capacityadditions in the refinerysector,Indiais anet exporter of petroleumproducts since2002.Exports mostly come from private refining capacityin Gujarat,initially launchedbyReliancebutwith apresenceofforeign companies aswell (Total,Shell …). Butanewgeographicallocation is nowdeveloping on the eastern coast andthe cityof Visakhapatnam(i.e.aprojectledbyTotalintechnicalpart- nership with MittalSteel). Anincentivefor investment in export-orientedrefinerycapacityis maintainedthrough a differentialtariff regime.Tariffs on imports of petroleum products are higher (10%) thancrudeimports (5%) which translates into aneffectiverate of protection of 40%for the refinerysector. Retail marketing sector Finally,oil products are soldto the publicatlarge through anextensiveretail network runbythree major companies ownedbythe federalgovernment. Private entryin this sector hasbeen limitedbecause of the complexpricing regime in place. Ifri, 2009

110 Energyin India’s Future:Insights

Prior to the dismantling of the administeredpricing mechanism (APM),effectivefrom April 2002,the government had anoil coordinating committee responsible formaintaining anoil pool account. Under the oil pool,certain petrol products likeaviation turbine fuels,petrol anddiesel were pricedhigher to cross-subsidizekerosene,LPG andnaphtha.However,it was decidedto subsidizedirectlythe supplyof kerosene and domesticLPG.The oil marketing companies (OMCs) were to adjust the retail selling prices of the other products in line with internationalprices during this period.However,in compliancewith government directions,the OMCsdidnot make adjustment in prices of kerosene anddomesticLPG, resulting in substantiallosses on these twoproducts.With the sharp rise in prices atthe internationallevel,the burden of subsidyon PDS kerosene anddomesticLPG balloonedto 250 billion rupees (around5billion euros). Inaddition to this,the government took backthe control of pricesetting forpetrol anddiesel,andrestrainedthe “pass-through” of the internationalprices to domesticconsumers. Issues andprospects The oil andgassector is vitalindetermining the environ- mentalandeconomicsustainabilityof the country,asitis increasinglyaplacefor corporate moves.Given the structure of nationalresources,the sector canhardlybede-linkedfrom India’s diplomacyandthe policychallenges in terms of operation,planning andcoordination with socialandenvironmental programs.There is most certainlyaneedforprogress on severalfronts: •Abetter public-private coordination in infrastructure planning,operations andretailing in the commercialand residentialmarkets foroil andgas. Asthe publicsector will not bewilling to abandon its role,there hastobea wayto establish joint-ventures between the publicand private sectors. •There is aneedforamulti-modal,multi-energies agencyat least in the ruralsector,where the publiccompanies would becalledupon to revise their tariff,subsidystructure,and modeofgovernancewith locallyelectedstructures. Ifri, 2009

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Asinmanyother sectors,aneedfor“islanding” of reforms according to the nature of the economicenvironment and purpose of use of energyis increasinglyneededin acountry whichdoes not haveacompletelyunitarianstate structure (see Ruet,2005,andHussain andRuet,2006).

Electricity sector Under the Constitution of India, electricityis ajoint responsibilityof the Centralandstate governments:with policybeing the prerogativeofthe former andthe latter enjoying the right to operate the sector.This industryevolved asaverticallyintegratedindustryunder the ownership of the State ElectricityBoards(SEBs) andelectricitydepartments in everystate of India.Theyvirtuallyownedeverygeneration, transmission anddistribution asset. Slowlythese SEBsbegan to beusedaspoliticaltools bythe respectivestate governments(Dubash andRajan2001).Politicians in government usuallyreducedtariffs foragriculturalanddomestic consumers withoutanyearmarking of howmuchsubsidyhad to bepaidbythe government to SEBs. Asaresult of this SEBs soon facedfinanciallosses.Duetothese problems,the World Bank helpedIndiacreate NationalThermalPower Corporation (NTPC)andNationalHydro Power Corporation (NHPC)during the secondhalf of the 1970sunder the ownership of the Government of India.SEBswere expectedto buy power from these companies.After the creation of these companies the WorldBank hasalwaysfundedprojects through these organizations.The ideawastomake SEBspayforeveryunit of power theyneeded.The endresult of suchpolicywasthat SEBscontinuedwith ever increasing losses because under the abovemechanism there wasnothing thatmadestate government responsible forthe financialviabilityof the SEBs. On the other handthe NTPC continuedearning profits along with capacitygrowth. InIndia, this distortedthe realsituation from the originalintentions of the Constitution,to the advantage of the centralgovernment. Todaythe NTPC is the most dominant player in the power generation market of India.Apart of its installedcapacitygrowth wasduetoasset transfers from the SEBsincases of default. In1989 Power GridCorporation of IndiaLtd.(PGCIL)wasincorporatedunder the ownership Ifri, 2009

112 Energyin India’s Future:Insights

of the centralgovernment to coordinate the interstate transfer of electricity. Inthe early1990s,comprehensivereforms in the electricitysector were initiated, whichallowedprivate andforeign investment in almost everysegment of the industry.Asapart of the reforms manySEBswere unbundledverticallyaswell ashorizontally.OrissaandDelhi went to the extent of privatization of distribution assets.Asaresult of this,significant generation capacitywasaddedbythe private sector,though not asmuchasexpected(24% of the totalInstalledcapacity asof2008). The future step in reforms is to haveaspot market forelectricity. The totalinstalledcapacityof electricitygeneration was 157 GW forthe year2006–07. The majorityof the electricity generatedcame from coalfueledthermalplants (72%). Electricityconsumes 73% of the totalcoalproducedin the country.The nextimportant contributions to electricitygener- ations come from hydro plants (14%),followedbygasfueled plants (10%) andthe rest (4%) comes from diesel,nuclearand renewables. The electricitysector is facedwith shortages.Peakand energyshortages forelectricityin 2006–07were estimatedto be14.8% and8.4%,respectively.This hasforcedmanyindus- trialunits to buildgeneration capacityfortheir ownneeds. Inaddition to this manyhouseholdsdonot haveaccess to electricity.According to the latest information available from the CensusofIndia, 44% of the houses were yet to haveelec- tricityin their homes in 2001. The evolution of the sector canbest beunderstoodin the larger terms of the struggle between the federalandthe state levels.Aselectricityhasseen the largest systemicchanges,we examine this sector more closely. Retreatofthe federatedstates’ publicsector or comebackof the Government of India? Inthe faceofthe factualpreeminenceofthe States,an attempt bythe Center to regain the upper handstartedright from the 1980s. The creation of the NationalThermalPower Ifri, 2009

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Corporation andof the NationalHydro Power Corporation (NHPC),ahydroelectricproduction company,the set-upin 1992of Powergridasa“CentralUndertaking” fordeveloping interconnections between the States andbuilding asingle nationalnetwork outofthe fiveIndianelectricalregions,rein- forcedthe Government of Indiain the direction of the earlier near-monopolypreviouslyheldbystate governments in implementing electricitypolicies. This come-backofthe Center hasbeen verysuccessful. Sincein2008,it controls 32%ofthe generation (asagainst 64% forthe SEBsand4% forthe private sector upto1999). Power FinanceCorporation—createdasapublicbodyin charge of financing projects forthe SEBsoutsidethe classic publicinvestment financing systems—hasestablishedsome conditions on loans aimedatinstitutionalreforms,along with asystem of control over their implementation. Inthis context,to whatextent canthe recent evolution in this sector beexplainedbythe influenceofthe forces internal to Indiaandto whatextent are theyduetothe externalpres- sure exercisedbylending organizations? In1991–92,the Government of Indiadecidedto open up the generation of power to private investment,including foreign investment. The Center having acquiredgreater control over generation thanithad over the transmission anddistribution networks,foundit simpler andquickerat the time to open upgeneration alone.Moreover,this enabled it to avoidentering into adebate over the matter of apublic serviceonanetwork enjoying astatusofnaturalmonopoly atthe level of the federatedstates.Regulations guaranteeda 16% rate of profit to independent producers,asagainst the earlier regulation of 3%. Despite that,outofthe 20 GW hopedforfrom the private sector bythe Planning Commission forthe Eighth Plan(1992–97),only2.7 GW were added.However the question is not alwaysjust of regulation,butalso of technologicalandinvestment choices.The reports bythe Planning Commission,aswell asexperts’ analyses havelong lamentedthatinvestment choices bythe publicsector tendto favor the construction of newpower plants to abetter maintenanceorrestructuring of existing Ifri, 2009

114 Energyin India’s Future:Insights

Table 26.Profitability of alternativestrategiestobridge the energygap(%) Strategies Internalrate of return (%) 1997 1997 2002 ActualWith tariffs Actual tariffs increase tariffs (average tariff to cover costs) Newplants 4 .5 7.5 8.6 Mixedstrategy –45% Newplants 10.5 18.5 13.4 –55% Correction of Plant Load Factor of existing plants Mixedstrategy –30%Newplants 13.5 18.6 19.2 –70%technicallosses improvement Elimination of nontechnicallosses 135.5 347.6 339.4

infrastructure.There hasbeen little economicassessment of this untappedpotential,except forcalculations elsewhere (Ruet,2006a). Wecalculatedthe comparedinternalrate of return of rehabilitation projects (transmission,plant load factor,reduction of losses,andso on) vis-à-vis generating capacityaddition (Table 26). Even atthen current subsidizedtariffs,andeven atan earlystage of reforms (1997),rehabilitation strategies were economicallymore viable thancapacityaddition; anadjust- ment in tariffs wouldhavemadethem quite profitable.In 2002,after subsequent tariff increases had happenedthese measures wouldhavestill been profitable… simplybecause the objectivesituation of the network had worsenedandthe potentialfor better management had widened.Retrospectively, one caneven see thataregulatoryregime basedon tariffs covering costs hasbeen detrimentaltogenuine incentives to lower the cost structure (siddigui2007). Indeed, whatcanbeconsideredasasecondphase of the reforms,initiatedin 1995,brought outunexpectedresults on the relations between the Center andthe States.In1996,the Chief Ministers of the States andthe representatives of the Government of Indiamet andit wasdecidedthatthe States whichsodesired, couldalso open uptransmission anddistri- Ifri, 2009

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bution to private investors.Itwasalso agreedin principle that aCentralElectricityRegulatoryCommission (CERC),anda State ElectricityRegulatoryCommission (SERC)wouldbe created, independent of governments.This agreement didnot yet fixthe modalities forthe setting upofthese Commissions nor their attributions.Itisnotable thatwhile the conference wasencouragedbythe WorldBank andwhile it marked symbolicallythe turning point in the “globalization” of the sector,the Government of Indiaorganizedit atatime when it wasexperiencing no particularlypressing financialproblem, andwasnot boundbyanyloanconditionality.Asfor the States, aformer Joint SecretaryforPower,acknowledgedduring a conversation thatthe Chief Ministers didnot reallyfeel greatly boundbythis declaration,whichopenedupapossibilityof an inflowof private capitalbutwithoutspecifying the constraints it wouldbring on the Commissions.AlegalActhasfinally establishedthe creation of these Commissions in 1998. This opening uptoprivate capitalanddisengagement of the States hasseveraladvantages forthe Center.Itis,in the last resort,the financialguarantor of the States,andthe burden of publicinvestments in deficit sectors is considered too heavy todayascomparedto the small operationalcontrol thatitexercises over them. This absenceofcontrol proceeds from twofactors.Firstly,the tariff andredistributivepolicies appearill-adaptedto the objectives of the Center,the subsidies going more to the richfarmers thantothe poor peasants,whereasthe socialcost of the sector is large sinceanot negligible share of the budget transfers is usedupbythe power sector atthe expense of directsocialprograms. Secondly,the use of the sector forlocalelectoralendsdoes not bring it anydirectadvantage atthe Center level andeven works against it keeping in mindthe fragmentedpolitical situation in India.Thatiswhythe Government of Indiahas extendedto all the generators,andtherefore to itself,the possibilityof formulating tariffs on the principle of aprof- itabilityof 16% of the assets andimposing cuts on the SEBs whichare bad debtors.The effecthasbeen to placeits company,NTPC, acknowledgedmoreover asbeing technically efficient,in afavorable situation. This hasalso resultedin Ifri, 2009

116 Energyin India’s Future:Insights

accentuating the financialpressure on the SEBsandtherefore the pressure exertedbythe Center on the States,thusforcing them to undertake reforms. The States on their part havetriedto oppose the viewsof the Center concerning the RegulatoryCommissions,andthe ElectricityRegulatoryCommissions Actwhichwere adopted in 1998 withoutfixing aminimaltariff (butwhile maintaining most of the other characteristics,whichbyitself constitutes a forwardthrust bythe Center). The Commissions havesince 1998 graduallybeen set upinmost of the States. Ultimately,onlyOrissa(in 1999) andDelhi (in 2002)have undergone privatization of the distribution of electricity.Both experiments haveshownthatimprovements are longer to come thananticipated. Toconcludeonprivatization of distribution,a“privatization market” is still missing:suchamarket implies buyers and sellers.Indiais constitutedwith animportant enough number of States,to haveanumber of sellers (the States who poten- tially,sooner or later,will bewilling to privatize) aswell as potentialtakers.Butthe privatization of utilities in India suffers from twodrawbacks: 34 •The privatization market is currentlynot large enough on the demandside(there are not enough private takers forSEBs),especiallybecause high risks are perceived: hencethe risk of (negative) competition among States, •The market is not asingle market andis actually segmentedbetween “relativelyprivatizable” and“less privatizable” SEBs. One SEB cannot bestraightforward comparedto another,andthere are fewlearning mechanisms thatmayproducestandardinformation available to everymarket player.Hencethe risk of “undervaluing” SEBs,aswell asnot to bring enough newtakers,which reinforces the first drawbackfor adurable timeframe. Nosingle solution canfit Indianstates’ diversity.Wehave suggestedelsewhere (Ruet 2005) the following approach. If

34. Foradetailed analysis,refertoRuet(2006)and Ruet(forthcoming). Ifri, 2009

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Table 27.The feasibility domain of managementcontracts and privatization LowIncome State High Income State (lowinterest for(interest in catching the investor) the cash-flowrights) High GovernanceState Management contractBoth are feasible:State can (relativepush forispreferable decideonaneconomic Management Contract) trade-off basis LowGovernanceState Problematicsituation but,Privatization (relativesupport to ultimately,atmost a privatization) management contract is feasible

Source: Ruet (2005).

one crosses these twoparameters,income andgovernance, foursubcases appearinthis verysimple stylization (Table 27). •When both governanceandincome are high,everything is feasible oncewell-defined.The state canchoose according to the trade-off describedearlier,between earlyprivatization andhigher selling value. •When the income is high andthe governancelow,the boardis economicallyattractiveandaprivatization is in asense more securedforthe private sector asthere is no risk thatapoor governanceultimatelyhijacks it from its efforts andinvestment (this case mayhavebeen the scenario in Delhi). •When the income is low,though the attractiveness is low,amanagement contractcanbring reasonable income to acontractor if governanceishigh. Inthese States,management contracts shouldbefavored (AndhraPradesh might beanexample of this,though it rather wantedto privatizeits SEB). •When both income andgovernanceare low,the situation is problematic.Ifthe income is too low,the investor is not interestedin aprivatization,forthere is nothing to secure thatway.Still,amanagement contractwill remain the onlyfeasible solution,while offering low credibilitybecause of the lowgovernance. Onthese states,the support of the centralgovernment will be essential. Orissais in one of the twolatter categories, Ifri, 2009

118 Energyin India’s Future:Insights

depending on the assumption madeonits level of governance; in both cases,sticking to awell-definedmanage- ment contractwouldhavebeen better. This model is designedforastate; however,it canbe consideredthatits recommendations donot dependupon the geographicalscale of the areait is appliedto.

Identifyingnewtrendsand potentials

The Future:Business modelsand urbanmodels This section flags some issues thatare still partlyopen for research,butwhere significant experiencehasnonetheless been gainedto attest the industrialandurbanpotentials of newmodes of organization aroundenergy. Indiatodayis alaboratoryforthe kindof linkages it showsaswell asnewtrajectories it attempts or deploys. By definition,these are not stabilizedandwecannot venture into prediction. Butrather we’dliketoillustrate the dynamism of questions andsolutions aroundenergyissues through afew examples in whichwebelievethere is the potentialfor atrend. Westart with examples of energy-focusedcompanies developing their ownmarkets bybypassing (regulated)networks andeither developing large generation capacities to directly access industrialcustomers,or with amore decentralized series of strategies,trying to tapalarge potentialofindividual or collective(housing societies) consumers.Wethen providea variant of this with the—somehowgeneralizing—case of industrialcompanies diversifying into the energysector.We then continuewith smaller,verydecentralized, sometimes micro-financedmodels.Weultimatelysurveysome feedback effects:in size,atthe level of the metropolis; in infrastructure conception,with the example of water-energylinkage.

The makingofa‘sector’? The privateenergycompanyasanewplayer in India

RelianceEnergymaybethe groupwhichhasmadethe most fantasticleap,quite apart from its oil discovery.From a Ifri, 2009

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small electricitygroupinthe 1990s(earlier listedasBombay SuburbanElectricSupply,then acquiredbyReliance Industries),it went on to become aprime investor.Its most recent projects in conventionalelectricityamount to 12.5 billion euros,including athermalplant of aninstalledcapacity of 12GW (for 8.5 billion euros) thatwill bethe largest coal plant in the world(the groupisfamiliartothis strategy:its refinerywasbuilt asthe largest in Asia, bythattime byitself outstripping totalnationaldemand). Other significant investors in the sector are TATA,GVK, GMR, ESSAR (coaland gas) or Jaiprakash (hydel). Asforeign companies go,contracts are substantiallysmaller35. Inthe 1990s,the dominanceofNOCshasgraduallybeen reduced.Inthe upstreamsegment,there is agrowth of private domesticplayers likeRelianceIndustries Ltd.(RIL),whichisa nationalentity,regionalplayers likeEssar,GujaratState PetroleumCorporation Ltd.(GSPCL)andforeign firms,who usuallyventure into this segment through strategicalliances. Inthe downstreamsegment,NOCslikeIOC, HPCL andBPCL are facing competition from private players likeRIL, EssarOil andShell. The presenceofthe private sector in the refining segment hasbeen establishedwith RIL setting upa27million metrictons per annum(mmt/a)refinery(expandedto 33 mmt/a)atJamnagar,Gujarat. This presencewouldincrease with the proposedcommissioning of the 10.5 mmt/aEssarOil refineryatVadinarcoupledwith future expansion plans of Reliance(ChemtechFoundation 2004). Inthe marketing sector,apart from existing firms,the government hasgranted marketing rights to other firms foropening retail outlets, including ONGC, Numaligarh Refineries Ltd.(NRL),Shell, RelianceandEssarOil sincetheysatisfythe criteria.Inthe case of the transportation anddistribution network,public firms are going in forexpansions andextensions of their existing pipeline network,while private firms,likeRIL are laying newproductpipelines.GAIL is maintaining its domi-

35. Togivejustanexample,Alstom recentlygained anorderof 175million eurosfrom Gujarat

StateElectricity Corporation(GSECL),representing370MW.Asmaller,independentFrench renewable generator,VelcanEnergy,announced in 2007 acontractforthe concessionoftwo hydropowerplants totalling50MW. Ifri, 2009

120 Energyin India’s Future:Insights

nanceinnaturalgasdistribution with its plans to layapprox- imately7,900 km of pipelines over the next5–6 years,forming the NationalGasGrid.RIL is also working on developing its 95-pipeline network fortransporting the gasproducedin the Krishna-Godavari basin,besides also linking areaswhere it is exploring gastoits Jamnagarrefinery.Further,joint ventures haveemergedto distribute gastospecificcities (e.g. MahanagarGas,ajoint venture between GAIL andBritish Petroleumfor Mumbai; andIndraprasthaGas,ajoint venture between GAIL with BPCL forDelhi). Other joint ventures have also been formedthrough public-private holdings.Petronet LNG is one suchholding companyformedforimporting LNG andforinvesting in companies involvedin specificpipeline projects36. Inthe upstreamsegment,there havebeen asignificant number of joint ventures,with foreign players tying upwith the domesticplayers,both private andpublic.These joint ventures providefor asoundpartnership fordomesticfirms in the bidding process (both on technicalandfinancial grounds). Table 28through Table 31 reflectthe growing share of private firms in the oil andgassector.

Onstrategiesof industrydiversificationand technologicalshift Outboundinvestments in the oil andgassectors accounted for19% of the IndianFDI stockin2006. Butthis rather reflects anearlytendency.Although Indianconcerns initially sought to secure energyresources andconquer external markets in acontextwhere their growth on the domestic market wastightlycontrolled, recent dynamicsmainlyreflect asearchfor strategicassets:technology,market shares in developedeconomies,brandsandnewR&D skills.Like Chinese firms,theyare seeking to improvetheir initialcost advantage on the domesticmarket bymoving upthe added valuechain. Itisthusinteresting to note thatinthe year2004 forinstance,the sectors in whichIndianfirms concentrated their FDI in the UnitedStates were in information technology (80%),chemicals (7%) andpharmaceuticals (7%). Onthe other

36.Thisparagraph draws from DeepaMenon-Choudhary and P.R.Shukla;see footnoteabove. Ifri, 2009

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Table 28. Emergenceofnewentitiesin the post 1990s period Ownership Entity AreasofOperation Examples Structure CentralEntities CentralGovt. Individualentities ONGC, OIL, (major share IOC Ltd., in upstreamandGAIL downstreamsegment) Private Private Sector Integratedfirms RIL (national (domestic) (with major share player) Entities among private players) Essar Small private (regionalplayer) players in one areaJubilant-Enpro, Phoenix Joint ventures Public-Private CentralandInupstreamGAIL andEnpro (domestic) Private activities Finance; ONGC and Mittalgroup Public-Public CentralGovt. Inupstreamactivities OIL andONGC; IOC andONGC Public-Foreign Center andInupstreamactivities; ONGC andCEIL Foreign players marketing of Mobil-IOC, petroleumproducts Shell-BPCL Private Private andInupstreamRIL and (domestic)– Foreign players activitiesNIKO Foreign HybridEntities Public, Private InupstreamBG,ONGC, (domesticandactivities.RIL foreign) Import of LNG Petronet LNG

Source: Menon-ChoudharyandShukla(2006).

hand, only19% of the FDI in the EuropeanUnion targeted informationtechnology,the rest going to pharmaceuticals (17%),electronics(10%),transportation (9%),chemicals (7%) andmetalproducts (6%),the remaining 30%going to awide varietyof other sectors.Nowadays,investment abroad in energymostlyconcerns the state Indiancompanies.Infact,as one tries to foresee the future,these “statistics” are highly dependent on the individualstrategies of averyfewbutlarge firms:TataPower,Reliance,or acompanylikeSuzlon which hasinafewyears become the first Asiancompanyin renewable energywhichcouldwith single investments change the overall investment structure. Ifri, 2009

122 Energyin India’s Future:Insights

Table 29. Production of crude oil byfirm(%) 1990–91 2000–012004–051990–91 2000–012004–05 Onshore Offshore OIL 22.46 27.87 27.57 –- –- – ONGC 77.54 71.48 71.79 100 80.59 81.13 Private /joint 00.65 0.64 019.41 18.87 ventures

Source: Ministryof PetroleumandNaturalGas(MoPNG),http://www.petroleum.nic.in

Table 30.Production of gasbyfirm(%) 1990–91 2000–012004–051990–91 2000–012004–05 Onshore Offshore OIL 38.76 24.0922.39 ONGC 61.2471.91 61.72100 84.89 76.51 Private /joint 0415.89 012.11 23.49 ventures

Source: MoPNG,http://www.petroleum.nic.in

Table 31. Marketingofpetroleumproducts byfirm(%) 1990–91 2000–012004–05 Publicfirms IOC 57.1 47.8 43.5 BPCL 18.9 19.4 18.5 HPCL 19.217.9 17.1 Other publicfirms 4.8 4.8 6.2 Private firms 0 .8 10.1 15.2

Source: MoPNG,http://www.petroleum.nic.in

Internationalcollaboration gets structuredaroundsustain- able development projects andenvironment programs.The UNIDO,forinstance,launchedaninternationalnetwork for “cleaner production centers” targeting small andmedium enterprises (SMEs) of 23developing countries including India. Itfocuses on projects forreduction of the environmental impactofthe small industry.InIndiait working with the Ifri, 2009

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Confederation of IndianIndustry(CII),with aninitialfocus on automotiveequipment clusters.Decentralizedprojects exist aswell,likethe IndustrialEcologyAsiaNetwork—India, with asimilarprojectaroundthe Kaiserslautern University,ICAST (TechnologyExchange Network),the textile sector of the cities of Naroda andTirupur,tanneries in the State of Tamil Nadu, foundries in Calcutta, the paper or sugarindustryin Ankleshwar,Nandeseri,Thane-Belapur. These projects all seek to establish links between services,environment,andthe economicsecurityof the people. Ultimately,the emerging scenario is of atechnological catching-upfor renewable energies,ledbythe private industrial sector:ethanol,CNG andLPG in the short term,andbiodiesels on the midrun(3–10years),andmost likelyhydrogen and“fuel cells” in the longer term (possiblyafter 2015). Onthis latter question,the Syndicate of IndianAutomobile Manufacturers (SIAM)expects hybridvehicles (H 2 +CNG)andpure hydrogen combustion models to pickupveryfast from nowon.

Onfeedbackand systems:Peri-urban,ruraland micro-financed modelsand energyefficiencyin urbantransportsand water Lackofspaceprevents usfrom delving deeplyinto this, butthe veryconception of systems,andespeciallyperi-urban andurbansystems,is atthe core of energysustainabilityfor the future.Let usverybrieflystate this astowater andtrans- ports. The private sector to taplocalrenewable potential Banking on asurge from 3.5% of gridcapacityfrom renewable energysources to 10%bythe year2012(andalong term scenario of 50,000 MW of renewable energyto be commerciallyexploitedby2050),SREI Finance,the leading infrastructure asset leasing companyin Indiawith avery impressivebusiness model,launchedSREI Renewable Energy Unit (SREU)in1999 with the mission to “create asuitable institutionalstructure foreffectivedevelopment of renewable energymarket on commercialbasis andfinanceRenewable EnergyTechnologies (RETs).”Its portfolio encompasses solar, wind, hydro andhybridenergy. Ifri, 2009

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Building on amodel of leveraging acommercialbase or officenetwork from one activityto another,SREI hasbuilt on its dense network of financialagencies to develop into new business units.Inthe first 6years of operation,SREU had also developedaportfolio of contacts with major players in technologysupply,financeworldwide,government,and NGOs 37.Inorder to improveits commercialtarget,it had even usedthe micro-credit model through its partner NGOs. We believethese business practices,thatbridge levels of interven- tion across alargespectrum,illustrate whatweshowedin the first part of this chapter.Ifthis is true,then acompanylike SREI maybeatthe forefront of invention in aneconomy where the “average” doesn’t meanmuch. Apromising model for the industry:Peri-urbanbioenergies The production of biogasatthe individualscale,if gener- alizedto potentialof9to12million units thatIndiahosts, couldhaveaconsiderable impactinthe countryside,on forest preservation aswell asonthe macroeconomiclevel. Alarge potentialremains untappedforthe development of private ruralmarkets,andsuccessfulexperiments are numerous,such asbiogasinitiatives in the villages of SinghpuraandLotna, in the TikamghardistrictinMadhyaPradesh,under the “National Projectfor BiogasDevelopment” launchedin 1981–1982by IndiraGandhi. However,successes donot exist in India, often explained bythe persistenceofsocial/cast-basedtaboos.The largest community-basedexperiment,in Pura(Mandyadistrict,in Karnataka),runbythe IndianInstitute of Science,Bangalore, wasafailure after 7years of effort. Recent developments now target more homogeneouscommunities,typicallyin peri- urbanandsemiruralareas. Interms of comparedviabilityof different techniques,one nowsees enough projects thathavedevelopedwell whether

37 The variety of its partners isworthmentioning:from the IndianRenewable Energy DevelopmentAgencyLtd. (IREDA)—the ApexnodalagencyforRenewable EnergyDevelopment in India, tothe GlobalEnvironmentFacility (GEF),passingthrough InternationalFinance

Corporation(IFC),Washington—World Bank Group,ITPowerIndia(Pvt.) Ltd.,IMPAX CAPITAL, UK, the nationaland internationalreferencethatisthe TataEnergyResearchInstitute(TERI), withthe officialsupport of the Ministry of Non-ConventionalEnergySources(MNES). Ifri, 2009

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developedbyindividuals,communities,or industrials.However, realeconomicbenefit usuallyaccrues onlyin the last twocases; individuallevel projects are not yet veryviable.Interms of treatment of agriculturalwaste,industrialprojects seem the onlyone to reallyresolvethis localenvironment issue. Water-energylinkage in the urbanscenario Ifone looks atthe energylinkage,andespeciallythe energycomponent of inputs forwater supply,the figures from Chennaiare illustrativeoftwoaspects.First,power amounts to 57% of technicaloperationalcosts on the centralizedpiped system (power,chemicals,O&M). Second, this share is actually muchhigher asfarasalong-term energyscenario is considered, sincethe insufficiencies of the centralizedpipedsystem haveledto a“drought scheme” andhiring of water lorries.In both cases,the energypart represents the majorityof the total burden of 750million rupees! The amounts atstake are really worth considering alternativetechnicalorganization. Ifone considers sanitarywater,thatisthe flushing and house cleaning part,this share represents 30%ofdomestic usage. 38 Given the energyshare in totalsupplycosts,potential savings maybetappedfrom here.Indeed, this water couldbe producedlocally,either byusing groundwater sources that otherwise tendto begraduallyeliminatedbypublicorganiza- tions,or more likelybylocal(area-wise,ward-wise…) recycling of the wastewater coming from the other 70%uses of water. This wouldin turn saveontransportation costs forwater.This measure is interesting not onlyforcities likeChennai(resources constrained)orBangalore (where water hastobepumpedfrom a150km distant sourceandbrought to the heights of the city), buteven forawater-richcitylikeBombay,which,though it offers 250litres per capitaandper dayto its people,takesit from distant sources (see Ruet,Saravanan,Zérah,2002). Urbantransports Considering the life spanofurbanstructures,the type of urbangrowth thatcities of the South will experienceinthe

38. The part relatingtoflushingofthe toilets maynotnecessarilyrepresent“in-house” toilets:itrepresents what,onewayoranother,isneeded toevacuatethe excreta: thatway, thisestimateappliestoall categories. Ifri, 2009

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nextthreedecades will determinethe level of their energy consumption andgreenhouse gasemissions in the secondhalf of the century.Whether Southern cities followthe example of Atlantaor Barcelona, climate change will clearlyhavean entirelydifferent magnitudebythe endof the 21st century (Barcelonahouses andemploysapopulation 20%larger than thatofAtlanta, butonasurfacearea26times smaller,and uses 11 times less energyper capitaforurbantransportation).39 The future of the energyconsumption of urbantransportation is alarming.The factors thatdetermine the energy consumption of urbantransportation are muchmore complexto analyze,on the one hand, andmore difficult to influencethrough publicpolicy,on the other.Yet this is the energyconsumption thatisexpectedto growthe fastest,in business-as-usualscenarios.Moreover,urbanspatialstruc- tures,whichobviouslyhaveasignificant impactonthe demandfortransportation andthus,on the energyconsumption of transportation,haveamuchlonger life spanthan buildings,andare muchmore resilient. Therefore,taking action in this areais both amatter of urgencyandalong- term commitment. This requires atwo-prongedapproachtotackle urban energyconsumption,combining transportation policyand landuse policy.Motorizedvehicles must bemadeless polluting,the use of private vehicles must bediscouraged, and efficient publictransport must bepromoted.Urbanplanning andlanduse rules must beadaptedin order to facilitate the concentration of private investment in areasofhigh accessibility,generatedbythe implementation of mass transport systems.This will reducethe needformobility,through high densityanddiversityof urbanfunctions.Nonmotorized commuting must also beencouragedthrough appropriate urbandesign,andthe articulation of different types of transportation.

39. Thissubsectionquotesand draws from findingsbyBenoîtLefèvre. See Lefèvre,B.,2007, La soutenabilitéenvironnementale destransportsurbainsdanslesvillesduSud. Lecouple «transport –usage dessols»aucœur desdynamiquesurbaines ,Thèsededoctoraten

scienceséconomiques,DirGiraud,P.N.,Ecole desminesde Paris.Lefèvre,B.,2006,“Urban Transport,the EnvironmentalChallengePosed bythe GrowthofIndianCities”, Villeen Développement ,n° 71,ISTED. Ifri, 2009

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This generalissuefindsapropitiousterrain foranalysis in India.Until now,the strategyadoptedbyIndianmunicipali- ties hasessentiallybeen limitedto increasing the capacityof the road network. This headlong rush is particularlydangerous in thatitcreates anurbanstructure whichisincreasingly dependent on the car. InDelhi,scenarios forecast anincrease in the number of dailytrips per person from 0.8 to 1.2 between nowand2021anda50%increase in average journey length (byboth carandbus). Tomeet this demand, the number of vehicles wouldincrease to 8million. Itistherefore indispensable to provideeffectivealternatives.Fortunately, Indianurbanstructures are still compatible with transport systems basedon transport corridors.Urbandevelopment has been channeledbymajor infrastructures (road or rail) andnot spread over the entire urbanarea.Asaconsequence,the cities whichare highlycongestedare those whichare saturatedby cars.Theyare not (yet) cities whichare morphologically dependent on the car(where activities andresidentialloca- tions are highlydispersed). This contextprovides anopportu- nityforlarge passenger flowsandthe development of Mass RapidTransport (MRT)systems. ManyIndiancities haveplacedthe construction of a Mass RapidTransport (MRT)system on their political agenda.Delhi openedits thirdmetro line in September 2005. The construction of the first metro lines will get underway shortlyin Bangalore,Hyderabad andMumbai. Pune and Ahmedabad are discussing introducing BusRapidTransit (BRT). Chennaiisconsidering constructing alight metro.It is urgent fortheses projects to materialize. For the opportu- nitythatmass transit represents to become areality,it is essentialtocoordinate urbanplanning andtransportation policies. Landuse plans andfloor arearatios shouldbemodifiedto facilitate the concentration of private investment in zones of high accessibility.However,in practice,urbanandtransport plans are usuallydrawnupwithoutconsidering the interac- tions between them. Wedonot asyet possess sufficient understanding of the links between the construction of transport infrastructure andchanges in landuse andthe same applies Ifri, 2009

128 Energyin India’s Future:Insights

to the links between changes in the landuse planandfloor arearatio andtravel demand.

Renewable energyand localentrepreneurship Let usnow,before concluding,suggest thatthe twomost extreme faces of the countrysometimes meet. The poor, remote areasofIndia, forwhichwehavelargelycommented the strategicneedto turn towardRETs,showsome progress ledbyanewgeneration of localentrepreneurs. The business model in this sector is still evolving.Infact one experiences anewclass of well educatedyoung entrepreneurs who are highlymotivated.Their motivation emerges more from the level of deprivation thathe/she hasseen around him aspart of his/her growing upinstead of simplycommer- cialconsiderations.The organicinvolvement of localcommu- nityis verycrucialfor electrification to sustain in the long run,andthe centralizedgridsystem haslackedthis property sinceits inception. Ourfieldexperienceinthe state of Bihar showsthatrecentlylocalcommunities,after having long frus- trating experiencewith electricityboardexecutives,havetaken over the responsibilityof keeping their transformers in good condition. Theycollectivelyspendmoneyto fixit in case any fault happens instead of approaching the ElectricityBoard executiveresponsible forthat. This trendof localappropria- tion of dailymaintenanceisindeedbeing increasingly observedacross Indiaandacross sectors. Some of the projects in this direction were awardedby the Ashden Awards 40 .SELCO-India(Asden Award2007) is a private business whichhasdesignedandsoldover 48,000 solarhome systems,powering electriclighting andsmall appli- ances for220,000 people in Karnatakaandother states in South India.The Aryavart Gramin bank in UttarPradesh (Ashden 2008) setupabulk supplyandinstallation agreement with TATA-BP forPV solar-home-systems,andprovides loans forits customers with agoodcredit recordto purchase the systems.Todate 10,100 loans havebeen approvedand

40.The awardswerefounded in 2001bythe Ashden Trust,oneofthe SainsburyFamily Charitable Trusts(SFCT). Theyawarded80innovativeprojects todevelop theirworkinthe United Kingdom and developingcountries. Ifri, 2009

Shakti’savatars:WhichenergyforIndia? 129

8,000 solar-home-systems installed.InternationalDevelopment Enterprises,India(IDEI)(Ashden 2006) hascommercialized low-cost treadle pumps forirrigation. Over 510,000 pumps havebeen soldin the ruralareasofthe Eastern part of India, bringing substantialbenefits to farming families.

Small andmediumenterprises (SMEs) in Indiarelyon woodandother biomass astheir primarysourceofenergy. This is amajor concern thatisaddressedbyWorldBank in its report on India’s environmentalchallenge (WorldBank 2007). KeralabasedTIDE (Ashden 2008) hasdevelopedandadapted energy-efficient woodstoves andkilns forspecificindustries, including arecanutprocessing,silk reeling,textile dyeing, ayurvedicmedicine production andfoodpreparation. Over 10,500 stoves havebeen soldbyTIDE andthe entrepreneurs it hastrained: These stoves saveabout43,000 tons/year biomass,provideacleaner,cooler environment forusers,and often lead to significant time savings.DESI Power, 41 one of the winners of TechMuseumAward2008, 42 provides employment to localpopulation in the process of building andoperating renewable energybasedpower system mainlyin the areaof biomass.

Conclusion

CurrentlyIndiais characterizedbylowper capitaincome, lowper capitaenergyconsumption andlowenergyuse per unit of output. This contrasts with large urbanconcentrations andeven large urbancorridors with higher localenergyinten- sityper capita.This leadstothe cohabitation of anarrayof energysituations,from lowefficiency,environmentally adverse,“traditional” sources to newindustrialmodels,passing through the most usualchallenges of energyrationalization anydeveloping economyhasbutalso through the verynew urbansustainabilitychallenges thatthe emerging worldis

41.http://desipower.com/

42.The TechAwardsprogramthathonors innovators around the world who bringimprove- ments in the areasof education,equality,environment,health,and economicdevelopment through the useoftechnology. Ifri, 2009

130 Energyin India’s Future:Insights

hosting.Here is acase where analysis hastokeep shifting from the macro to the micro levels. ItistruethatIndia, asthe world’s fourth largest economy (in terms of GDP expressedin purchasing power parity)has achievedasustainedtrajectoryof high GDP growth:demand forenergysources,forIndiawill definitelyhaveasignificant impactonthe worldenergyprices andemissions.Butitmust bekept in mindthatthese absolute impacts are merely because of its high population sizeinstead of anymajor inef- ficiencyin production structure andmore over Indiangrowth is necessaryto removepovertyanddeprivation. Onthe other handwesee thatdisparities during the periodof high GDP growth haveincreased.Widening inequality,lackofinclusiveness of growth is reflectedin dismalperformanceofIndiain terms HDI ranking andin absolute valueofthe indexitself.Empiricalevidenceshows thatcountries likeIndiacandramaticallyimprovetheir HDI bysmall increments in their per capitaenergyconsumption. Ensuring commercial(modern) energysupplies in aggregate does not necessarilytranslate into anappropriate distribution of the same to everybody.Indeed, access to these supplies is determinedbycomplexnature of power relations existing in the Indianeconomy. Wediscussedthe centralityof access to modern energy services (MES)for nationalandglobalenergyandenviron- mentalsustainability.Usuallylackofaccess to MES,in literature,is addressedasacase of energypoverty(IEA 2007,Pachauri et al. 2004). Weprefer to call it povertyof MES.Indeedthis povertymayexist because of either lack of energyresources themselves or because of technology.In the case of India, povertyof MES exists largelybecause of lackoftechnologythatcanefficientlyconvert the locally available biomass,windandsolarenergyforfinaluse of residents.Therefore MES povertyin Indiais amanifesta- tion of another kindof poverty;i.e.,of technologypoverty; Here weuse the term technologyin averybroad sense of the term asemployedbySchumpeter (1976). This definition of technologyencompasses the physicalconversion technology,the management techniques andinstitutionalinno- Ifri, 2009

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vations thatwill enable the implementation of modern energyservices. Most of this povertyconcentrates in ruralareaswhichare abundant in biomass,solarenergyandwindenergy.This problem canbeaddressedbythe following measures. 1. Cost reduction andstandardization of technology through increasedresearchanddevelopment activities. 2.Reducing the information gapthrough campaigns demonstrating thatitiseasyto understandandoperate RETs. The campaign must assume the importanceofa movement,suchasthose forfighting AIDS andfor vaccination. 3. Local-level “enterprization” program. This will lead to significant reduction in transaction cost andpeople will no longer remain captives to “babugiri,”orthe domina- tion of Indianbureaucracy.This programalso hasthe potentialofsolving the problem of unemployment among the ruralyouth. Inthis context,it is veryclearthatthere shouldbeno “brownvs. green” agenda.Onthe contrary,povertyalleviation anddevelopment forthe largest part of the population would belinked(in atwo-wayfashion) to energyefficiency.Aninclu- sivegrowth wouldpromote andreflectenergyefficiency.Of course,atthe upper endof society,the urbanrationalization (of construction,transportation,energycontents in water systems,mobility,etc.) is asmuchaneedto ensure thatthe higher-endgrowth is not too energyintensive. Since1991,variousenergysectoralreform policies have significantlychangedthe incentives andownership in many subsectors andledto market development,buttheyare still short in delivering on inclusiveness (access) andenviron- mentalsustainability.Wesee thatthe vast andcomplexmacro- economyof Indiais also quite complexin terms of energy. While in the aggregate,correlation of energyconsumption andGDP growth might bequite similartothose of other economies,India’s differs extensivelyin details.Noother nation in the worldfaces suchahigh level of deprivation in Ifri, 2009

132 Energyin India’s Future:Insights

terms of modern energyservices—576 million people without electricity(lighting) and782million withoutefficient cooking facilities i.e.,gasandkerosene.This deprivation implies quite alowper capitaincome,energyconsumption andenergy intensityof GDP.Butthis shouldnot suggest thatthe minority groupinthe countrythathasaccess to modern energy consumes anyless energyor anyother commodityforthat matter comparedto other nations.Onthe contrary,this small privilegedminorityof Indiais asbig asthe population of the UnitedStates. The contrast between whatisabig economyandthe mind boggling figures of deprivation for70%ofabillion-pluspopulation,hasanimpactoninternationalnegotiations forenvi- ronment andtrade. The “per capita”figures bringing artificiallydownthe image,this helps the privilegedminority groupofthe countrygain concessions forthe whole economy. These concessions are then usedexclusivelybythemselves to further their owneconomicemancipation leaving rest of countryto its ownfate. Providing suchalarge population with modern energy services will definitelyhaveenvironmentalconsequences as coalisIndia’s main fuel forelectricityproduction presently andwill remain so in future.The cost of electrifying villages of Indiathrough centralizedgridsystem is large and complex,whichisseldom appreciated.Wearguethatifthese costs are properlyunderstood, renewable energytechnologies maybecome acompetitiveoption forgaining access to modern energyservices in ruralareas. Onthe other hand this will balancethe higher CO2 emissions duetomassive use of coalinorder to meet the industrialandurbandemand forenergy. Suchalarge andheterogeneouspopulation andcomplex economylikeIndia’s needsconsiderable attention from the internationalcommunity.Wepropose thatdiplomacyshould befocusedon building aninternalconsensusfor energyefficient technologicalchanges andincreasing access to modern energyservices bysupporting academia, civil societyorganizations andbusiness groups,whose current dynamism is another dimension thatistoo often underexamined. Ifri, 2009

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Ifri, 2009

Nuclearpowerin India

C.PierreZaleskiandMichelCruciani*

Historicalbackground:The three-stage strategy Indiahasalong relationship with nuclearenergy.The country’s centralgovernment set upapolicybody,the Indian AtomicEnergyCommission,in August 1948 in the early months of the young independent nation. The promoter of nuclearenergy,Dr. Homi Bhabha, persuadedthe government thatIndiashouldmaster all aspects of nucleardevelopment, from uraniummining to advancedreactor design. Heinsisted on Indiadeveloping atomicresearch. The first researchcenter waslaunchedin 1954 nearMumbai(formerlyBombay); it was eventuallyrenamedBhabhaAtomicResearchCentre.Four more researchcenters openedin the following decades. Asactivities developed, it became necessaryto create an umbrellastructure.The Department of AtomicEnergywasset upinAugust 1954 under the directcontrol of Prime Minister JawaharlalNehru.Todayit is asimportant asaministry, managing the fiveresearchcenters andall publicundertak- ings andindustrialorganizations committedto nuclearenergy.

*C.PierreZaleski isgeneraldelegateforthe Centerof Geopoliticsof Energyand RawMaterials (CGEMP),University of Paris-Dauphine,and MichelCruciani issenioradviseratthe CGEMP. Ifri, 2009

142 Energyin India’s Future Insights

Under current lawall activities relatedto nuclearenergymust remain under publiccontrol. The IndiannuclearstrategywasoutlinedbyDr. Bhabhain 1954 andfullyendorsedbythe prime minister.Although uraniumwasavailable in the internationalmarket andinter- nationalcooperation wasstill open,nevertheless India’s strategywasbasedon achieving self relianceassoon as possible; it sought to exploit India’s large thoriumreserves anddomesticindustrialcapability.The nationalnuclear programwastherefore basedon aclosednuclearfuel cycle in whichthe spent fuel wouldbereprocessed.This strategy aimedatthe future use of thoriuminstead of uraniumas fertile material 1 . The programcomprisedthree stages: 1. Inthe first stage,Indiawouldcommission andoperate nuclearreactors fueledwith uranium. The spent fuel of these reactors wouldbereprocessedto obtain plutonium. 2.Inthe secondstage,Indiawouldrelyon fast breeder reactors using fissile plutoniumtoconvert both thorium anduraniuminto more fissile materials.Researchand development forthis stage wastostart immediately. 3. Inthe thirdstage,Indiawoulddevelop advanced nuclearpower systems forutilization of fissile uranium obtainedfrom thoriuminstead of naturaluranium. Researchfor this stage couldbepostponed. This strategyhasbeen thoroughlyappliedduring 50years, andIndiastill officiallystates thatitadheres to the three-stage program.

1. Uraniumisanelementwithseveralisotopes.Naturaluraniumcontainson average 99.3% of isotope 238 Uand 0.7%ofisotope 235 U.Inthismixonlyisotope 235 Uisfissile. Heavy water reactors acceptnaturaluraniumwhenlightwaterreactors need highercontents in uranium 235 U.Enrichmentof uraniumisaimed atenhancingits contents in isotope 235 U(upto4%for lightwaterreactors). Uranium 238 Uand thorium 232 Tharefertilematerials.Underthe actionofneutronsin reactors theyconvert intofissilematerials 239 Puand 233 U, respectively.The usualsourceoffast

neutronsisplutonium. Plutoniumdoesnotexist in nature. Itcomesfrom the transmutation of 235 Uor 233 U.Fast-neutron reactors arecalled “breeders”whenthe quantity of produced plutoniumishigherthanthe quantity of burntplutonium. Ifri, 2009

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The concept of “self reliance,”whichdidnot forbidinter- nationalexchanges in the earlydays,took on dramaticimpor- tanceafter the warbetween ChinaandIndiain 1962.Inthe ensuing years,Indiabecame convincedthatnuclearweapons were necessaryto balanceChina’s nuclearcapability.This perceivedneedgrewwhen it appearedChinawassupporting Pakistan’snucleararmament program. Indiatherefore remainedoutsidethe 1970NuclearNon-Proliferation Treaty andacceptedInternationalAtomicEnergyAgency(IAEA) safeguardsfor onlysome of its facilities.After Indiaconducted anundergroundnucleartest explosion in 1974,the country wasexcludedfrom tradeinnuclearplants or materials,except forsome supplies devotedto the safeguardedfacilities. Nucleartradeisregulatedbythe NuclearSuppliers Group, whichwasformedin 1974 in the wake of this test explosion. The exclusion severelyrestrictedaccess to naturaland enricheduranium. India’s uraniumresources are modest and the possibilityof using thoriumbecame more appealing. Inspite of its isolation,Indiawasable to develop a complete—if small—set of nuclearpower technologies.

Main achievements within the first stage The emphasis putonresearchwasreflectedin the early building of tworesearchreactors andcriticalfacilities in the BhabhaAtomicResearchCentre:Apsara(1 MWth,operating from 1956) whichwasthe first researchreactor in Asia, and Cirus(40MWth,1960). Later on athirdresearchreactor was built on the same site,Dhruva(100 MWth,1985). The first steps of nuclearpower generation were painful. Indiadecidedto test both the light water andthe heavy water lines.The NuclearPower Corporation of IndiaLtd.(NPCIL) wasestablishedunder the Department of AtomicEnergyto design,build, commission andoperate all nuclearpower plants. For the light water line,two200 MWeboiling water reactors—Tarapur1and2—were purchasedfrom GeneralElectric on aturnkeybasis.Both reactors startedcommercialoperation in 1969. Recurrent problems causedthem to bedowngradedto 150MWe. Ifri, 2009

144 Energyin India’s Future Insights

The first pressurizedheavy water reactor,Rawatbhata1, usedCanada’s DouglasPoint reactor (200 MWe) asareference unit. Itwasbuilt asacollaborativeventure between Atomic Energyof Canada Ltd.andNPCIL.Though construction of both plants beganaboutthe same time,DouglasPoint started operation in 1967 butnumeroussetbacks preventedits Indian twin from starting operation until 1972.Rawatbhata1 incurredaseries of earlydifficulties andwassoon retrogressed to 90MWe. The reactor wasduplicatedbyNPCIL, but Rawatbhata2also facedproblems.Itwasreadyto operate onlyby1980andits power waslimitedto 187 MWe. These fourreactors (Tarapur1and2andRawatbhata 1and2)are under IAEA safeguards. The twolight water reactors were using importedenricheduraniuminitiallyfrom the UnitedStates.EventuallyRussiaandFrancewere allowedto supplyenricheduraniumfor these reactors. Finally,Indiachose pressurizedheavy water reactors (PHWRs) forthe first stage of its strategy.Officiallythis choice wasguidedbythe industrialcapabilitythatexistedin Indiaat thattime.Anadvantage of heavy water reactors is thatthey needonlynaturaluranium. Therefore Indiacouldavoiddevel- oping the difficult technologyof enrichment forcivilian purposes.Whatiseven more important is thatheavy water reactors generate more plutoniumthanlight water reactors forthe same amount of mineduranium,whichisadecisive criterion foracountryhaving scarceuraniumreserves and needing plutoniumfor the secondstage of its strategy.Maybe the choicewasalso guidedbythe factthatplutoniumfor mili- tarypurposes is easier to obtain byreprocessing spent fuel from heavy water reactors thanspent fuel from light water reactors. The industrialsituation steadilyimprovedduring the following decades.Indianengineers successfullyduplicated the PHWRs:nine reactors of 202 MWewere commissioned between 1984 and2007. Inrecent years,anupgradedversion of the PHWRswasdevelopedindigenously,to enhanceoutput to 490MWe. The first tworeactors of the newseries (Tarapur 3and4) startedoperation in September 2005andAugust 2006,5years after pouring first concrete andseveralmonths Ifri, 2009

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ahead of schedule,whichisaremarkable achievement. Beyond the 490MWeseries,design is nowcomplete forafurther upgrading to 700 MWe. According to Indiansources,capital cost of the 700 MWe(estimated1700 $/kW)will befarbelow worldrange (2000 to 2500 $/kW). Itmust also benoticedthatduring recent years the oper- ationalperformanceofnuclearpower plants showedgradual improvement. According to Indiansources,the PHWRshave consistentlyachievedavailabilityfactors of about90%inthe recent past along with anexcellent safetyrecordconsistent with the best performing reactors in the world. Since2005,difficulties haveshiftedto nuclearfuel supply. Inthe summer of 2008most of Indiannuclearpower plants were running atabouthalf of capacityduetoachronicshortage of fuel. The situation wasexpectedto persist forseveralyears, aspoliticalopposition hasdelayednewuraniummines.

Prospects forthe second and thirdstages India’s uraniumresources are modest butits resources of thoriumare among the largest andbest qualityin the world. Thoriumcannot beusedasafissile materialbutinafast breeder reactor (FBR)itcanbeconvertedto fissile uranium ( 233U),as 238U—the main component of naturaluranium— canbeconvertedto 239PU. Inthe secondstage of the strategy,a40MWth fast breeder test reactor (FBTR)basedon the FrenchRapsodie design has been operating since1985 atthe IndiraGandhi Centre for AtomicResearchatKalpakkam. Itwasbuilt byBhavini,the publicundertaking in charge of the fast reactor program. Itis nowplannedto beoperating foranother 20 years.Itservedto develop Indianknowledge on FBRsandnotablythe technologyof carbidefuels. Bhavini is nowbuilding a500 MWeprototype fast breeder reactor atKalpakkamwith atechnologyclose to the European fast reactor projectdevelopedbyFranceandGermanyafter the Superphoenixexperiment. The unit is expectedto operate by2010or 2011,fueledwith uranium-plutoniumoxide Ifri, 2009

146 Energyin India’s Future Insights

(the plutoniumstemming from existing PHWRs). Itwill have ablanket with thoriumanduraniumtobreedfissile uranium andplutonium,respectively.This will set the scene foreven- tualfull utilization of thecountry’s abundant thorium-to-fuel reactors.Fourmore such500 MWeFBRshavebeen announcedwith 2020 asgoalyearfor operation. Inthe thirdstage of the strategy,aseries of three research reactors (Purnima1,2and3) haveexploredthe thoriumcycle, the first (1971) running on plutoniumfuel,the secondandthird (1984 and1990)onfissile uraniumfuel madefrom thorium. In the nextstep,a300 MWeadvancedheavy water reactor (AHWR)will bedevelopedasatechnologydemonstration project. Alarge criticalfacilityto validate the reactor physicsof the AHWR core wasbeing commissionedatBhabhaAtomic ResearchCentre in September 2007. Indianengineers would likethe AHWR to provideaplatform to demonstrate new passivesafetyfeatures.Itishopedenhancedsafetyrequire- ments will enable AHWR to bebuilt close to population centers.

Newconsiderationson the nuclearstrategy Because of constraints on fissionable material,Indian nuclearexperts became aware thatthe thirdstage of the strategywouldrequire in the secondstage ahuge capacityin fast breeder reactors if the countrywere to aim atalarge quan- titativedevelopment of nuclearenergy.Studies indicate that the optimumstrategywouldneedanFBR capacityof 200 GWe (or 200,000 MWe) to start introducingthorium-basedfuel in the FBRs. With the first FBR (0.5 GWe) being commissioned in 2010,suchacapacityof 200 GWecouldnot beachieved before 2050in the best scenarios. Meanwhile,the Indianeconomysawunexpectedgrowth since2000,averaging close to 7% per year. This compares to anaverage growth of 3% per yearinthe 1970s,picking upto 5.8% per yearinthe 1980sand1990s. Indiangrowth reached 8.3% in 2004,9% in 2005and9.7% in 2006. The Indian government’sgrowth target during the eleventh FiveYearPlan (2007–2012)is9%per year,with the aim to providedecent conditions of life forall citizens by2050. Ifri, 2009

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Economicgrowth leadstoasurge in power demand.In “AStrategyforGrowth of ElectricalEnergyin India”(August 2004) the Department of AtomicEnergy(DAE)hasestimated thatthe use of all available domesticresources (coal,gas, hydroelectric, renewables andnuclearinthe three-stage program) will not besufficient to meet the requiredelectricity generation profile.According to the estimation,the deficit will increase sharplyafter 2020 andwouldbeofthe order of 412GWeby2050.Ifitwants to meet the power requirement, Indiawill haveeither to import growing amounts of coal,up to 1.6 billion tons in 2050,or to import nuclearreactors and nuclearfuel under internationalcooperation. DAEstatedthatthe gapbetween requirement andsupply caneasilybemet if about40GWecapacityof light water reactors is importedduring the period2012–2020.The additional condition is thatthe plutoniumfrom spent fuel of these light water reactors is usedin aseries of fast breeder reactors. Inorder to grasp the magnitudeofthe DAEproposal,the figure of 40GWeimportednuclearcapacitymust becompared to the capacityof Indianoperating nuclearpower reactors: 3.8 GWeby2007,another 3MWebeing under construction.

Turningpoint:India-USAand India-NSGagreements The Indiangovernment endorsedthe Department of AtomicEnergyviewanddecidedto actonthe diplomatic front. Itsoon became clearthatthe UnitedStates would respondpositively.The U.S.attitudetowardIndiahad shifted sinceSeptember 2001andthe warinIraq. Although India never ratifiedthe NuclearNon-Proliferation Treaty,the countryhasmaintainedanimpeccable nonproliferation record in the sense thatitnever divulgedits nuclearknowledge to other parties.Inatime when the UnitedStates wasseeking “globalpartnership” andChinawasappearing more andmore asafiercecompetitor,closer ties with Indiacouldhelp. The visit of Prime Minister Dr. ManmohanSingh to the UnitedStates in July2005endedwith ajoint statement on possible cooperation between the twocountries regarding peacefuluse of nuclearenergy.Itwasconfirmedafter the visit Ifri, 2009

148 Energyin India’s Future Insights

of President George W.Bush to Indiain March2006. Other countries,suchasRussia, Franceandthe UnitedKingdom, indicatedtheir strong support forgreater cooperation. Indiaandthe UnitedStates startedthen to draft abilateral agreement. Parallel negotiations were launchedwith the IAEA. Negotiations with UnitedStates endedin July2007andthe proposalwasthen open to ratification. Inhis statement to the Lower House of the IndianParliament,the prime minister underlinedthatthe agreement wouldfullymaintain the autonomyof India’s strategybasedon Dr. Homi Bhabha’s three-stage program. Butheadded: “For India, it is criticallyimportant to maintain ourcurrent GDP growth rate of 8to10%per annumifourgoaloferadi- cating povertyis to beachieved.The energyimplications of this growth rate over the nextcouple of decades are enormous. Even if wewere to exploit all ourknownresources of coal,oil,gas andhydropower,wewouldstill beconfrontedwith ayawning demandandsupplygap. Indigenoussupplies of uraniumare highlyinadequate andhenceweneedto sourceuraniumsupply from elsewhere. […]Ourtarget for the year2020is 20,000 MW of nuclearpower generation. Itisquite modest. However,if internationalcooperationonceagain became available,we couldhope to double this target.” Incidentally,the environmentalbenefits of nuclearenergy, namelyasanon-CO2 emitting energy,were hardlymentioned in the discussion,whichshowsthatfor the time being Indian responsibilities towardclimate change are not anissueinthe country. After strenuousdiscussions the IndianParliament approvedthe agreement in August 2008. India’s newsafe- guardagreement with IAEA wasalso adoptedin August 2008. InSeptember 2008,the NuclearSuppliers Groupadoptedby consensusaresolution to exempt Indiafrom its rule of prohibiting tradewith nonmembers of the Non-Proliferation Treaty.This exemption wasgrantedin spite of some opposition from countries likeAustriaandIrelandand, more notice- ably,in spite of the presenceofChinawithin the group. A bilateralagreement forcivil nuclearcooperation wassigned Ifri, 2009

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with FranceinSeptember 2008. InOctober 2008,the U.S. Congress passedthe bill allowing civil nucleartradewith India.InearlyDecember anagreement between Indiaand Russiawassignedfollowing amemorandumofunderstanding agreedupon in February2008. The agreement with IAEA includes aseparation plan:Eight of the power plants in operation or in construction andall new ones will beplacedunder IAEA safeguards. Indiawill builda newnationalreprocessing facilityunder IAEA safeguards. This facilitywill bededicatedto reprocessing foreign spent fuel from light water reactors.Anyfissionable materialthat will beseparatedmaybeutilizedin nationalfacilities under IAEA safeguards. Anunresolvedquestion lies here:Will India use foreign (read French) technologyforthis reprocessing plant,or mayit extrapolate the localtechnologydevelopedfor the spent naturaluraniumirradiatedin heavy water reactors? The agreement includes provisions providing forassur- ances of uninterruptedsupplyof fuel to reactors thatwould beplacedunder IAEA safeguardstogether with India’s right to take correctivemeasures in the event fuel supplies are inter- rupted.The agreement does not affectunsafeguardednuclear facilities andit will not affectthe right to use materials,equipment,informationortechnologyacquiredor developedinde- pendently.Aboveall,the agreement regardsonlycivilianuse of nuclearenergy.Itdoes not affectIndia’s right to undertake future nuclearweapon tests,butIndiandiplomats gaveassur- ances thatnosuchtests were planned.

Startingpointforfurtherdevelopment

The 2008agreements ended34 years of tradeisolation on nuclearmaterials andtechnology.Newoptions are nowopen forIndianuclearpower generation. When the agreements are signed, Indiawasoperating 17 nuclearpower reactors foratotalcapacityof 3.8 GWe. All are of small capacity(less than500 MWe). With anoutputof 17.5 TWh,nuclearpower accountedfor2.5% of totalelec- tricitygeneration in 2005whichamountedto 699 TWh. The Ifri, 2009

150 Energyin India’s Future Insights

latter figure showsthatper capitaelectricitygeneration is one of the lowest in the world, comparable to thatofMozambique. Todaycoalisthe dominant fuel in India’s electricitygeneration with ashare close to 70%,whichislikelyto stay unchangedover the nextdecades.Gas-firedgeneration accountedfor9%andrenewables,mostlyhydropower,for 15%. According to the ReferenceScenario of the International EnergyAgency—less optimisticthanthe Indianone—electricitygeneration is projectedto growby6.6% per yearinthe period2005–2015; the average annualincrease shouldbe5.7% in the period2005–2030.Even with this more conservative hypothesis totalcapacityadditions between 2006and2015 are projectedto amount to 410GW,including the replacement of some older power plants. There is clearlyroom forahuge development of nuclear power.Not onlythe overall growth forelectricitygeneration is high,butthe government hasexpressedconcerns about growing import bills:66% of gasandoil is currentlyimported, andimportedcoalisexpectedto increase from 12%(2005) to 28% (2030)ofcoalprimarydemand.The prime minister has putanemphasis on nuclearenergyandsolarenergyto playa more important role in addressing India’s energysecurity needs. Regarding nuclearpower,the target of 40GW by2020 is nowfrequentlymentioned. Nuclearreactors under construction in October 2008will add only3GW to the present capacity.Nucleargeneration will reach6.8 GW by2010if the sixnewreactors are commis- sionedon schedule.These newreactors consist in three pressurizedheavy water reactors of 202 MWeeach,the prototype fast breeder reactor of 500 MWeandtwopressurizedlight water reactors (PWRs) of 950MWeeach. The twoPWRsare being suppliedbyRussiaandare VVER 1000 reactors.Itwill bethe country’s first large nuclear power plant,under aRussian-financedUS$ 3billion contract. The twounits are being built byNPCIL atKudankulamand will becommissionedandoperatedbyNPCIL under IAEA safeguards. Unlikeother Russianturnkeyprojects,suchasin Ifri, 2009

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Iran,there are onlyabout80Russiansupervisorystaff in India. Most of the work hasbeen undertakenbyNPCIL staff.Russia will supplyall the enrichedfuel,though Indiawill reprocess it andkeep the plutonium. Indiawill also keep the reprocessed uranium(still slightlyenrichedcomparedwith natural uranium). The Russiancontractmaybeamodel forfuture import with three main characteristics: •Most of the financing bythe exporter •Supplyof enrichedfuel bythe exporter •Large transfer of technologyto Indianstaff

Anewera The target of 40GWeoperating by2020 is difficult to achieve. Indeed, 10newpower reactors are being planned and 15 more are under consideration:Inall cases theyare to be built andoperating before 2020.The totalnuclearcapacity will then range between 30and33 GWe. Therefore,Indiawill needto go beyondthe above-mentioned25projects andstart construction no later than2015 of fivetoseven additional light water reactors of unit power between 1.1 and1.6 GWe. Adetailedlook showsthatamong the planned reactors onlyfourwill belong to the Indianheavy water reactors new series of 700 MWe. The other sixwill beimportedlight water reactors (LWRs). The recent Indian-Russianagreement,signed on December 5,2008,paves the wayforthe construction of fouradvancedVVER 1200 reactors atKudankulampower plant. The existing power plant of Kaigacouldhost twoLWRs or the newsite of JaitapurcouldbeagreenfieldfortwoLWRs. For JaitapurandKaiga, NPCIL startedexploratorydiscussions with three reactor suppliers:Areva, GE-Hitachi and Westinghouse-Toshiba.The unit power of these reactors will beinthe range of 1100 to 1600 MWe. Among the 15 reactors still under consideration,fourwill again belong to the Indianheavy water reactors newseries of 700 MWe. Another fourcouldbefast breeder reactors of Ifri, 2009

152 Energyin India’s Future Insights

500 MWeifthe prototype launchedatKalpakkamproves successful,giving momentumtothe secondstage of the Indiannuclearstrategy.Itisalso hopedthatademonstrator of the advancedheavy water reactor canbebuilt (300 MWe) as animportant step towardthe thirdstage of the strategy,ulti- matelyfueledbyIndianthorium. The remaining sixreactors under consideration will beimportedlight water reactors of 1100 to 1600 MWe,fourofthem being built on the site of Jaitapurandtwoonanewsite. Will Indiachoose asingle supplier forall plannedand under consideration reactors? Indiamight certainlyconsider a positiveanswer if one of the suppliers were able to offer cheaper plants andbetter financing conditions thanthe others andalso organizeatransfer of technologyon alarger scale. Although the detailedcontent of the recent Indian-Russian agreement hasnot yet been published, it is likelythatRussia hasofferedagooddeal,giving to its supplier Atomstroyexport anadvantage over its competitors2 .However,duetothe historyof nuclearenergyin India, anegativeanswer seems muchmore likely: •Firstly,Indiamight bereluctant to become dependent on one supplier forthe equipment aswell asfor the enrichedfuel. •Secondly,Indiawants to import up-to-date technology: Europeanpressurizedreactor (EPR)from Areva, economicsimplifiedboiling water reactor (ESBWR) from GE-Hitachi,AP1000 from Westinghouse-Toshiba. None of these reactors is in operation today.Therefore thereare risksofproblems anddelaysinbuilding and operating them. Twotypes are in construction (EPR: one in Finland, one in FranceandtwoinChina;AP 1000: fourinChina)while the ESBWR design byGE-Hitachi is not yet approvedbythe U.S.NuclearRegulatory Commission. Adiversityof types wouldreducethe overall risk.

2.Inits 18 December2008issue,NucleonicsWeekstatesthatIndiahastaken anoptionfor sixmoreVVER-1200reactors,in additiontothe sixprevious VVER reactors tobebuiltin Kudankulan. Ifri, 2009

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•Thirdly,one of the rationales of the agreements on the peacefuluse of nuclearenergywasthatIndianunder- takings wouldhenceenlarge their expertise andbeina position to benefit from the growing demandof nuclear power throughoutthe world.This demandwill most likelyregardlight water reactors,the LWRs,butitisyet unclearwhichtechnologywill befavoredbycustomers. Mastering severallight water technologies might bea commercialadvantage forthe Indiannuclearindustryif it wants to export its know-how. •Finally,asindicatedabove,in addition to the six planned LWRsandthe sixLWRs under consideration Indiawill havetobuild another fivetoseven reactors to achieve the target of 40GWenuclearpower capacityin operation by2020.HenceIndiamaybetemptedto “nation- alize” the foreign technology,andto produceastandard Indiandesign asFrancehasdone,starting with Westinghouse technology,andasSouth Koreahasdone, starting with combustion engineering technology (currentlyWestinghouse-Toshiba). Itisimportant in this perspectivetochoose the best technology:lower capital cost,shorter building time,more reliable plant,lower operating cost,andso on. Indianengineers facenow twoconservativedesigns (VVER andEPR)andtwo innovativedesigns (AP 1000 andESBWR). The latter offer higher risks of problems butpotentiallylower capitalcosts.Itmaybewise to experiment with the four technologies before choosing the Indianstandarddesign. Shouldall of the above-mentionedreactors becommis- sionedbefore 2020,Indiawouldthushavelaunchedin 12years more thanfivetimes the nucleargeneration capacity achievedin the 40previousyears.

Economicuncertainties From abroad economicpoint of viewIndiahad the fourth largest GDP in the worldin purchasing power parityin 2006. Itcantherefore compare with countries likeFrance,where 57 nuclearreactors with totalcapacityof over 61 GWewere Ifri, 2009

154 Energyin India’s Future Insights

built in 20 years,Japan,whichcouldbuild54 reactors totalling 45.5 GWein40years,andSouth Korea, where 19 nuclear power reactors amounting to 17.1 GWewere built in 22 years.

ButFrance,JapanandKoreaenjoyedamore adequate legalandcommercialframework whichcouldstimulate investment either publicor private.Indianpublicpower companies canhardlysustain ahigh level of investment because of insufficient revenueduetopricing policies thatkeep tariffs to most customers belowthe cost of supply,andduetofailure to collectrevenues from muchofthe electricityconsumed. Subsidies from centralandstate government are limitedby the high fiscaldeficit andheavy publicdebt.

Economicreforms were introducedin 1991 in order to boost investments from the private sector,butresults have been modest until 2003. Sincethe ElectricityActof2003local private investment hasshownsome encouraging signs,but manyprojects still facedelaysinobtaining regulatory approval. Foreign private investment maybedeterredby cumbersome procedures anddifficulties with landacquisition contributing to escalating projectcosts.The government recentlybecame aware of the risk andis currentlyaddressing these issues.

Asregardsfinancing of electricitygeneration,the government also proposedto private investors guarantees foroff- takesortake-or-paycontracts.Investors maysomehowhave limitedconfidenceinthe sustainabilityof suchschemes.They wouldcertainlyprefer thatthe publiccompanies in charge of transmission anddistribution tackle to improving the Indian networks.Todaythe level of losses,asashare of totalgenera- tion,is among the highest of the world.Onaverage,losses from the plants’ ownuse of electricityin power generation, insufficient investment andpoor maintenanceofthe networks amount to 17%,andlosses from theft amount to another 15%, bringing totallosses to 32%oftotalgeneration.

Indiawill havetotake verystrong steps to improvethe situation if it is to attractinvestment to nuclearpower generation in the present worldeconomicsituation. Ifri, 2009

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Otheruncertainties Investment will also beneededin the industryif Indiais to supplythe components of the newpower plants.With the exception of certain qualities of steel,Indianindustryhasbeen able so fartoproduceall equipment forthe locallydesigned nuclearpower plants.Those were of small andmidsize. The plannedimportedreactors are more powerful:Itcreates anew challenge forlocalsuppliers.The rhythm of deliverywill also bedemanding. The government hashigh hopes thatlocalengineers will “Indianize” importedreactors andthen duplicate astandard design. This wasmadeinthe earlydayswith the heavy water reactors,butthe proposedpacefor the construction of light water reactors requires muchfaster mastering thanthe previousadaptation. FranceandSouth Koreahaveachieveda similarstrategywith light water reactors.HenceIndian nuclearpower companies will needto recruit alarge number of scientists andengineers.Itisnot certain whether the present educationalinstitutes cansuffice. Moreover,in abooming economythe publicsector is somehowless attractivethanit usedto beandpublicwages are muchless rewarding than earnings proposedbyprivate undertakings. India’s impressiveevolution forthe last years gavebirth to newforms of opposition forces,namelyenvironmentalNon GovernmentalOrganizations.The generalbelief is thatNGOs will tolerate the building of newnuclearpower plants asthose plants increase neither the localpollution duetoSO2 ,NOx andparticulate emissions nor the IndianCO2 emissions. Nevertheless NGOscouldsupport localopposition to specific plant implementation,more on a“Nimbysyndrome”3 thanon ideologicalbasis.Indiais ademocracyandcentralgovernment planning or state decisions maybechallenged.Recent local opposition to newuraniummines succeededin delaying operations in three different states (Jharkhand, Meghalayaand AndhraPradesh).

3.Nimby(“Notin mybackyard”) syndromerefers toopponents who do notcondemn the technology(beitnuclearenergy,windpower,motorways,etc.) but do notwantsuchafaci- lity closetotheirhome. Ifri, 2009

156 Energyin India’s Future Insights

Opposition couldgrowif anuclearaccident were to happen. Nosignificant accident wasrecordedin the past decades,butthe exclusion of Indiafrom manyinternational nuclearforums means thatlocalsafetyauthorities couldnot benefit from their counterparts’ experience. Indianoperators were also deprivedof many“peer reviews” whichplayamajor role in suggesting waystoupdate dailyoperations andsafety routines.There is no doubtthatIndiacancatchupwith the best-performing countries asregardsnuclearsafety,andthe recent agreements on nuclearcooperation will certainlybea wonderfultool forquickimprovement. The doubtlies more in the abilityto manage in ashort periodmanyrequirements, suchasthose inducedbyanewtechnology—light water—in severaldifferent applications—VVER, EPR, AP 1000, ESBWR—andin alarge number of units.

Technicalcrossroad Asspecifiedbythe IAEA agreement Indiawill buildanew reprocessing facility.Itwill bededicatedto reprocessing spent fuel of foreign origin under IAEA safeguards. Itisyet unclear whether Indiawill beable to extrapolate its reprocessing experiencefrom heavy water reactors spent fuel to the new unit or whether foreign technologywill berequired.The IAEA agreement lacks in precision with respecttotransfer of technology relatedto reprocessing.However,there is no urgencyto start building the facilityandthis issuecanonlyhaveminor influ- enceonIndiannuclearpower strategy. The game is more open asregardsother aspects.The three- stage programcannot beopenlyrebukedforpoliticalreasons: Its founder is still muchhonoredthroughoutthe countryand the validityof self relianceisstill stronglyanchoredin many politicians’ minds. Most of them fearthatincase of regional tension foreign uraniumsupplymight beonceagain restricted forIndia.Thusthe three-stage strategywill not bediscarded butthe secondandthirdstages might bealtered. Asfor the secondstage,Indiais nowamong the world leaders with the construction of its 500 MWeprototype fast breeder reactor (PFBR). Russiais the onlyother countrywith Ifri, 2009

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alarger FBR under construction. Butthe PFBR design is basedon improving former concepts withoutrealbreak- through; it is the “evolutionary”way.Manycountries in the worldhaveshowninterest in FBRs,buttheyhope to jump directlyto newconcepts:it is the “revolutionary”way.These countries haveset the “Generation IV InternationalForum” to coordinate researchefforts andshare results.After the signing of the internationalagreements it will beinthe interest of all parties thatIndiafullyparticipates in the worldwideresearchaboutnewFBRs. While the rest of the worldwill benefit from Indianexpertise in this field, Indiamaywell wait forfresh sharedknowledge before dupli- cating its PFBR in fourunits aspreviouslyenvisaged. However,under the present agreement it is unclearhowfar collaboration cantake place. Asfor the thirdstage,the use of thoriuminanewtype of reactor couldproveverycostly.Researchisstill farfrom conclusivebutitappears thatmaterials-relatedconstraints will require high qualitymetallicalloysnot easilyavailable. Thoriumwasonlymeant to replacefertile uranium. Indianow having access to internationaluraniumresources,the use of thoriumhaslost relevanceunder current economicconditions. The 238Ucontent in the depleteduraniumrejectedbyenrich- ment plants andthe uraniumcoming from light water reactors spent fuel reprocessing currentlyhaveaverylow economicvalue. Under the newagreements Indiawill have access to large quantities of this uraniumcoming from reprocessing plants andcouldprobablyalso acquire from abroad large quantities of depleteduraniumingoodeconomiccondi- tions.This mayrespondto Indianneedsfor fertile materials forhundredsofyears while thoriummaybekept in the groundforaneven more distant future.Asaresult,the building of aprototype reactor able to befueledwith thorium (advancedheavy water reactor) will likelynot becancelledbut it mayevolvemore into aresearchtool rather thanthe first of akind. The upcoming participation of Indiain international forums will undoubtedlybenefit all parties.Its long-standing experienceandresearchprograms will help speedupprogress Ifri, 2009

158 Energyin India’s Future Insights

in manynuclearapplications.Tomention onlyone,in addition to its works on FBRsIndiais pursuing researchefforts regarding high temperature reactors forhydrogen production, andits contribution in this fieldwill certainlybevaluedby manyresearchteams aroundthe world.Onthe other hand, it is most likelythatIndiawill adjust its ownstrategyfrom the experienceofthe internationalnuclearcommunityto which Indianowhasaccess.

Conclusion Indiahasall cardsinhandto become anucleargiant in the 21st century.The countryoperates in goodcondition a consistent number of nuclearpower plants,its industryis able to supplymost of the equipment,andits researchcenters have given it aleading position in the fieldof fast breeder reactors, whichwill playamajor role forthe future of nuclearenergy. However,the growth of Indiannuclearcapabilitywill depend on the country’s abilityto tackle seriousproblems. Prior to all other measures Indiamust provideeconomic sustainabilityto its electricitysector.This means pricing electricityin awaythatalarger share of investments canbe basedon power sale revenues,including investments needed forimproving,reinforcing andextending all networks.A soundeconomicframework will bethe best guarantee for foreign contributions to the financing of newnuclearpower plants. Another set of reforms couldopen the Indianuclear industryto private capital. Uptonowonlypubliccompanies havebeen allowedto buildnuclearfacilities.Inacountryas large asIndia, with afederalconstitution,the issueof enlarging the nuclearindustrialbase through semipublicor private undertakings makessense.Itmight besuitable to involvemore operators,considering the huge construction programahead.Commitment of private actors in the enhancednuclearprogramcouldbeagoodwayto secure long term investments.

Further on,publicauthorities will havetoconvincethe Indianpeople thatnuclearenergyhasthe advantage of Ifri, 2009

Nuclearpower in India 159

providing asafe supplywhile avoiding large emissions of CO2 . Inthis respect,asIndiabecomes more andmore aglobal player its responsibilities in the globalfight against climate change will certainlyappearasanormaldutyto alarger range of politicians.Butthese leaders will havetowin the support of the people. Finally,Indianauthorities will havethe difficult task of not sacrificing the mediumandlong-term future to short-term andpresent pressure.Indeed, the capitalneedsfor nuclear plants andinfrastructure are larger thanthose forcoalplants, andespeciallyforcoalplants thatdonot avoidlocalpollution. Nucleariscompetitiveonlyif one considers the operation of the plant fordecades.Inaddition,if there is apremiumfor not emitting CO2 ,then nuclearshouldbeverycompetitive. Butatthe time decisions are madeinacountrythatisdevel- oping rapidly,there maybeverystrong pressure to minimize the capitalinvestment.

Sourcesof information WorldNuclearAssociation (WNA)—CountryBriefings. Shakti’savatars:WhichenergyforIndia?Joël Ruet (CNRS- Latts-Paristech) andZakariaSiddiqui(JawaharlalNehru UniversityandUniversité catholiquedeLouvain). Meeting thedemand—Astrategyforgrowth of electrical energyin India—DAE—2004. Milestones in IndianAtomicProgram—Department of AtomicEnergy—2008. Prime Minister’sstatement in the Lok Sabha(lower house of the IndianParliament) on Civil NuclearEnergyCooperation with the UnitedStates,August 13,2007. Evolving IndianNuclearProgram—Dr. Anil Kakokdar, IndianAtomicEnergyCommission,2008. WorldEnergyOutlook 2007—ChinaandIndiainsights— InternationalEnergyAgency.

Ifri, 2009

AppendixA—Supplementary data forChapter2

Annex1Installed capacity of powerstations . of MW ) 5. 2 7 0 . 00 T ot a l 76.13 20 .86 441.57 G r a n d 0 873.3 2 7486.11 MW 1 2 35. 00 1 2 46.7 8 00 4. 997 0 .85 934 0 . 00 8961.67 7341. 0 5 1485.41 41 0 79.84 74453.76 4735 0 .99 19 2 75. 0 9 19416.4 2 39174.99 4 2 419.94 1 2 73 . 00 22 346.89 16 0 39.99 1996 0 .71 b y c omp u ter E nerg y S o u r c es v e d . 9.97 off .5 ca pti v e p ac it y h a s i s l a nd (in RES b e a ppro 6.11 0 . 00 0 . 00 0 .86 5. 2 55 0 . 3 2 4.53 0 . 00 0 . 00 0 . 51 0 . 00 0 . 00 0 . 00 o u n d ing to RES** 146. 0 1 2 5 6. 145.98 200 .41 200 .36 846.3 22 699.41 571.87 20 81.67 8773.57 6 220 .69 5374.37 2 698.95 1 2 71. 83 ( MNRE ) 1 0 855. 2 41 or a nd ES = R ene w ab le , still ,R a nd c o v ere d u n er tr a nsferre d to P o w er t a ll y d u et 0 . 00 0 . 00 0 . 00 0 . 00 0 . 00 0 . 00 0 . 00 0 . 00 MW ste H y d ro m a inl 86 0 . 00 2 56. 00 20 4. 00 444. 00 786. 00 8 0 2 . 00 1 2 3 0 . 00 1116. 00 3348.93 3144.93 7198.5 0 3 1 .74 15 20 . 00 5 2 34.5 0 311.89 5498. 00 6615.15 2 5896.76 1 0 646.18 1 0 646.18 1 2 899.15 35 20 8.76 ( R ene w ab le) a y not 148.67 propose d sh a res n d u stri a l Wa . 00 . 00 . 00 . 00 . 00 . 00 0 . 00 0 . 00 0 . 00 0 . 00 0 . 00 0 . 00 0 . 00 0 . 00 0 . 00 0 . 00 0 . 00 0 . 00 r egion s of ca p ac it y h a s b een f d e c im a lm N u c le a r 41 20 . 00 11 00 . 184 0 . 00 118 0 . 00 118 0 . 00 41 20 . 00 a p ac it y of ( NTPC ) a re t he in dc in &I = U r ba n nerg y t ed ,U 0 . 00 0 . 00 e c on d pl ac eo S ip a t TPS T ot a l 7 0 . 02 20 . 00 5 0 . 02 2 4.5 00 6 2 5.56 375. 00 844.74 1 20 8.1 2 11 00 . 68 00 .5 9 2 71.5 20 1 2 44. 4 0 . 00 78 00 . 1441.5 20 8 2 4 0 . 00 937 2 . 00 4198. 20 9361.99 T herm a l 35148.99 46475.33 15867. 0 8 . 00 3 0 37 .7 184 . 00 22 135.68 1 2 773.69 9 0 895.84 of a ts in dE P o w er . S imil a rl yw c on v ention a l H y d ro RES the S h a res F ig u res . 00 t a ion s lo ca iii) 0 . 00 0 . 00 0 . 00 0 . 00 0 .14 0 . 00 0 . 00 0 . 20 0 . 00 0 . 00 T he n d er 7 0 . 02 20 . 00 5 0 . 02 17. 20 17. 0 66 14.99 14.99 P = B iom a ss S ol a r n dW 597.14 14 2 .74 1 20 1.75 ii) B re a k u p ,B .( &I, ,U RES po w e rs y MNRE .( BP Ga sifier ca p ac it yu of G, n d er 0 . 00 0 . 00 0 . 00 0 . 00 0 . 00 0 . 00 ,B 2 4.5 00 9 0 . 00 771.5 0 14 2 .74 37 2 . 00 375. 00 19 0 . 00 35 0 . 00 M o d e w ise 6638.99 3869.7 2 6 0 4.61 4183. 00 2 5 00 .5 0 576.8 3587.3 351 2 . 00 1658. 00 2 311.99 T herm a l 14691.71 SHP u rnishe db tot a l SHP p ac i ty w hi c h a s o v ere d u n er G = B iom a ss ca p ac it yu ca MW n c l u d es 0 . 00 0 . 00 0 . 00 3 0 . 00 0 . 00 C o a l Ga s D iesel 71 0 . 00 89 0 . 00 86 0 . 00 0 5 . 00 P roje c t ,B 33 0 . 00 51 0 . 00 5659.88 668 2 .5 0 3586.3 939.3 22 8577.5 0 3543.19 5 002 .38 a lled 4491.38 1441.38 65 0 8.5 1 00 . 8 2 .5 0 735.8 36 938 .8 20 2 54 0 . 00 1168 4 200 1. 00 153 2 5.5 0 143 .7 17. 81 115 2 7.5 0 1 31. 20 0 . 9. 200 7 a sf ( RES )i d e u c te from n3 w in d po er H y d ro a in st so ot a l 0 . 00 ot a l3 ot a l1 ot a l1 ot a l 2 375 .5 0 66 00 .7 17.48 ot a l1 I ndi ca p ac it y of da t aa T ot a l7 S t a te S t a te S t a te S t a te S t a te S t a te S t a te S e c tor P ri v a te P ri v a te P ri v a te P ri v a te P ri v a te P ri v a te P ri v a te C entr a l 2 851 0 . 00 C entr a l 0 . 00 C entr a l 0 . 00 C entr a l7 C entr a l7 C entr a l5 C entr a l7 A ll HP = S m a ll S u bT S u bT S u bT S u bT S u bT S u bT SHP O w nership E nerg y S o u r c es d e u c te from A 1. T he

INDIA b le b een ( ** ) Ba se d on Ta R egion ALL I sl a n d s R egion Ea stern N orth Ea stern R egion R egion S outhern (iii) R egion W estern a lso ca pti v e p ac it y h a s b een N ote : (i) Abb re v i a tion :S N orthern R egion R ene w ab le Ifri, 2009

162 Energyin India’s Future:Insights

Annex2 India’sdemand on natureapproachingcriticallimits GlobalFootprint Network 10/13/200808:55 PM:

India’sDemand on NatureApproachingCriticalLimits Asthe worldgrapples with the escalating effects of the financialcrisis,GlobalFootprint Network reportedon another mounting—andunsecured—debt:agrowing gapinIndia between the amount of naturalresources the countryuses and howmuchithas. Indianowdemandsthe biocapacityof twoIndiasto providefor its consumption andabsorbits wastes,according to areport releasedbyGlobalFootprint Network and CII (Confederation of IndianIndustry). The report, India’s EcologicalFootprint:ABusiness Perspective ,waspresented Mondayin NewDelhi to aconferencethatincludedtop Indian environmentalofficials,leaders of Indianindustry,U.S.State Department representatives andother stakeholders. India’s EcologicalFootprint—the amount of productiveland andseaarearequiredto producethe resources it consumes and absorbits waste—hasdoubledsince1961,according to the report. Today,the country’s totaldemandon biocapacityis exceededonlybythe UnitedStates andChina.“Indiais depleting its ecologicalassets in support of its current economic boom andthe growth of its population,”saysMr. JamshydN. Godrej,Chairmanofthe CII Sohrabji Godrej Green Business Centre.“This suggests thatbusiness andgovernment interven- tion are neededto reverse this riskytrend, andensure asustainable future in whichIndiaremains economicallycompetitive andits people canlivesatisfying lives.”

FootprintShrinkingWhile GDPGrows Since1961,India’s GDP hasnearlytripled, going from $177 in constant U.S.dollars to $512.Over thatsame period, however,the EcologicalFootprint of the average individualin Indiahasactuallydeclinedby12percent. This is atrendthat Ifri, 2009

Appendix 163

India’sgrowingEcologicalDebt(1961-2003)

runs counter to thatseen in manyindustrializing Asian nations where Footprint hasincreasedasGDP increases.It suggests thatwhile some citizens are enjoying ahigher standardof living,the majorityof Indians are not benefiting from this wealth. Rather,povertyis growing asanincreasing number of people compete foralimitedpool of resources. While Indiaasawhole demandsasignificant percent of the world’s biocapacity,its per-capitaEcologicalFootprint, 0.8 globalhectares,is smaller thanthatinmanyother countries,andwell belowthe worldaverage of 2.2globalhectares. Indeed, the EcologicalFootprint of manyIndians mayneedto increase to allowforsufficient food, shelter,electricity,sanitation,medicine andmaterialgoods. Atthe same time,the UnitedNations projects thatIndia’s population will reach 1.7 billion by2050.Ifthis is the case,Indiais likelyto facea widening ecologicaldeficit even if current per-capitalevels of resourceconsumption remain the same.

PerCapitapercentchange1961to2003 Population GDP Footprint Biocapacity change (%) (%) (%) (%) India190-12-46 135 Thailand569 56 -25129 China1458 100 -22 95 KoreaRepublic985 363 -54 85 Ifri, 2009

164 Energyin India’s Future:Insights

EcologicalFootprintforselected nations,withpopulation (2003)

6% 15% India(pop.1065 3% 45% millions) 4% China(pop.1311 4% millions) 3% Brazil (pop.178 millions) 20% Japan (pop.127 10 millions) a) it

ap Russia(pop.143 rc 8 United States millions) pe Germany es

ar 6 Russia Germany (pop.82 ct

he Japan millions) al 4 Brazil United States (pop.294 lob China (G millions) India INT 2 Rest of theworld PR OT

FO 0 Indiaalso hasthe largest totalwater footprint of any countryin the world.This is essentiallyduetothe sizeofits population,asits water use per capitais less thanthatinmany countries with similarorhigher incomes.Inaddition,40years after the Green Revolution,manyexperts arguethatIndia’s population is growingfaster thanits abilityto producestaples suchaswheatandrice. Some attribute the lagtothe factthat irrigation andagriculturalresearchhasnot expandedsincethe 1980s,butgroundwater hasalso been depletedatanalarming rate.InPunjab,forexample,more than75percent of districts extractmore groundwater thanisreplenishedbynature.

Risks,RewardsforIndianIndustry Tomaintain arobust economyandgoodqualityof life, the report states,Indianbusinesses andgovernment must invest in areassuchaswomen’shealth andeducation to reducefamilysize,resource-efficient cities andinfrastructure, andincreasedfoodsystem productivity.Significant efforts in the business sector are alreadyunderwayin the areasofalter- nativepower,green building,low-emission vehicles and energy-efficient manufacturing.Indiais poisedto playamajor role in the large-scale commercialization of renewable energy technologies andcanoffer technologytransfer to other indus- trializing nations.The countryhasachievedinstallation of Ifri, 2009

Appendix 165

over 10,000 MGW of renewable-basedcapacity.Itisfourth worldwideinterms of windpower installedcapacity.More than95% of the totalinvestments in renewable energyin Indiahavecome from the private sector.Indianindustryhas also establishedambitioustargets forlow-Footprint construction,with IndianGreen Building Council having set agoalof achieving one billion square feet of green building spaceby 2012.Clearly,India’s current ecologicaldeficit poses aclear challenge to its leaders’ abilityto improvethe qualityof life forvast segments of the population nowliving in poverty.For Indiaasasocietyto continuetoprosper in anincreasingly resource-constrainedworld, business andgovernment leaders must work activelyto protectthe naturalcapitalonwhich India’s economy,andall humanlife,depends. With policies andbusiness practices thatvalueandprotectthe country’s naturalcapital,Indiacanshift from aneconomythathas grownatthe expense of the environment to one thatflour- ishes bypreserving it. http://www.footprintnetwork.org/en/index.php/GFN/blog/ indias_demand_on_nature_approaching_critical_limits

Annex3 Powershortagesforecast 2008–09 CEAprojects 8.8% powershortage in 2008–09 SanjayJog Postedonline:Aug20,2008at2311 hrs IST Mumbai,Aug 19,2008 –The CentralElectricityAuthority (CEA)hasprojectedmore power shortages in 2008–09. The estimatedenergyshortage will beabout8.8% andpeak shortage of about18.1% in the country. Northern,western andsouthern regions are likelyto expe- rienceenergyshortages of nearly6.3%,18.8% and8.2%respectively,while eastern andnorth eastern regions are expectedto get surplusenergybyaround12.7% and3.3% respectively. The peakshortages in northern region are expectedto be 19.4%,western region (27.4%),southern region (18.8%) and northeastern region (15.1%) while the eastern region would havesurplusenergyby1.9% in 2008–09. Ifri, 2009

166 Energyin India’s Future:Insights

Peakshortage will beofthe order of 21,701mwin the current fiscal. The annualenergyavailable wouldbe7,28,962 million units (mu)against the annualenergyrequirement of 7,99,578 mu.Thus,the energyshortage wouldbe70,616 mu. The average energyshortage per daywill be193 mu. CEA recalledthatduring 2007–08,the totalex-busenergy availabilityin the countrywas6,66,007muagainst arequire- ment of 7,39,343 muleading to ashortage of 73,336 muor 9.9%. The totalpeakmet forthe countrywas90,793 mw against apeakdemandof 108,866 mw,resulting in apeak power shortage of 18,073 mw(16.6%). All the regions—northern,western,southern,eastern and northeastern—continuedto experienceenergyaswell aspeak demandshortage forvarying degrees on anoverall basis, although there were short term surpluses depending on the season or time of day. The surpluspower wassoldto deficit states or consumers either through bilateralcontracts or through traders.Western regions comprising Maharashtra, Gujarat,MadhyaPradesh, Chhattisgarh andGoaexperiencedthe maximumenergy shortage of 38,945 muor 15.8% andmaximumpeakshort- ages of 88,892mwor 23.2%. Twonewinterregionaltransmission corridors had been addedin March2007,Patna-Balia400 kVd/cline between the eastern andnorthern regions,andone circuit of Agra-Gwalior 765 kVbetween the northern andwestern regions.Inaddition, aBiharshariff-Balia400 kVd/cline wasaddedin 2007–08. This strengthenedthe interregionalconnections between the north, west andeast andhasprovidedopportunities forsale of power from surplustodeficit areasacrossthese regions,asandwhen available,through short-term open access. Considering the capacityaddition of 10,178 MW in 2008–09andthe addition of the above-mentionedinter regionallines,deficit states canutilizethe opportunityfor reduction of their shortages byprocuring power from the surplusstates.However,the concernedstates wouldhavebook the transmission corridor under the transmission open access regime andtie-upthe commercialarrangements well in time. Ifri, 2009

Appendix 167

Annex4Powergeneration The overall generation in the countryhasincreasedfrom 264.3 billion units (BUs) during 1990–91 to 551.7 BUsduring 2006–07(uptoJanuary2007). The overall generation (thermal+nuclear+hydro) in publicutilities in the countryover the years are asshownin the nexttable.

Generation Year (Billion Units) 1990–91264.3 1995–96380.1 2000–01499.5 2001–02 515.3 2002–03531.4 2003–04558.3 2004–05587.4 2005–06617.5 2006–07 551.7 (uptoJan.’07)

Source: AnnualReport 2006–07,Ministry of Power.

Powersupplyposition The energyrequirement forthe countryduring 2006–07 (uptoJanuary2007) stoodat572812MU andenergyavail- abilityduring the same periodwas519656 MU resulting in energyshortage of 53156 MU (9.3%). Peakdemandforenergy in 2006–07(uptoJanuary2007) wasrecorded100403MW

EnergyEnergyEnergynergy Yearrequirement availabilityshortage shortage (MU)(MU)(MU)(%) 2000–01507216 467400 39816 7.8 2001–02 522537 48335039187 7.5 2002–03545983 49789048093 8.8 2003–04559264 519398 39866 7.1 2004–05591373 548115 43258 7.3 2005–06631554 578819 52735 8.4 2006–07 572812519656 53156 9.3 (uptoJan. 07) Source: AnnualReport 2006–07,Ministryof Power. Ifri, 2009

168 Energyin India’s Future:Insights

Peakdemand

YearPeakDemandPeakMet Peakshortage Peakshortage (MW)(MW)(MW)(%) 2000–0178037 6788010157 13.0 2001–02 78441 69189 925211.8 2002–038149271547 9945 12.2 2003–0484574 75066 950811.2 2004–05879067765210254 11.7 2005–0693255 8179211463 12.3 2006–07 1004038642513978 13.9 (uptoJan. 07)

Source: AnnualReport 2006–07,Ministryof Power.

whereaspeakdemandmet during the same periodwas86425 MW andhencethe peakshortage stoodat13978 MW (13.9%). The power supplyposition of the countryover the years is showninasshownbelow. Annex5Noncommercialenergy Asfor the debate over noncommercialenergy,the table belowpresents acomparativeanalysis of datafrom the IEA andthe Planning Commission on primaryenergydemandin 2030. Itthusseems likelythatinits reports the IEA included noncommercialenergyin the strange categoryof hydro- biomass.This hypothesis,both in volume andin relativeterms seems credible after severalquickcalculations.Indeed, in 1990 (see table below),this type of energyrepresentedclose to 30% of totalenergydemandandin 2030it will haveavolume of close to 200 Mtoe (or abit more than14% of the totalenergy mix),anumber relativelyclose to the 185 Mtoe projectedby the Planning Commission fornoncommercialenergy.Inaddi- tion,it is evident thatinvolume aswell asinrelativeterms, the estimatedneedsfor fossil resources (coal,oil,gas) are reasonable close.Onthe other hand, it is particularlyinteresting to see thatthe IEA in its linearprojections does not at all take into account the possibilityof renewable development, while the Indians are particularlyoptimisticabouttheir capabilities to producenuclearenergy. Ifri, 2009

Appendix 169

IndianPrimary EnergyDemand in the ReferenceScenario (Mtoe) IndianprimaryenergyPlanning Commission, demand(in Mtoe) IEA Scenario 11 in 2030(Nuclear+Renewables) Coal620 632 Oil 328350 Gas93150 Nuclear3398 Hydro 22 35 Hydro-Biomass (?) 194 Noncommercial:185 NewEnergies 987 Total1299 1351 Average annualrateofgrowthfor2005-2030 19902000 20052015 20302005-2030*(%) Coal106164 208330620 4,5 Oil 63 114 129188 3283,8 Gas10212948934,8 Nuclear24516 33 8,3 Hydro 66913 22 3,9 Hydro 133 149 158 171 194 0,8 Biomass Other 0014 911,7 renewables Total320 459 537 7701299 3,6 Totalexcluding 186 311 379 599 11054,4 biomass AppendixB—Supplementary dataforChapter3

Table B1. Conversion efficiencyof fuelsused forcooking Fuel Efficiency(%) Commercial Soft coke/coal10 Kerosene (pressure stoves) 40 Kerosene (wickstoves) 36 LPG 60 Electrichotplates 71 Noncommercialfuels Firewood(closedhearth) 16 Firewood(open hearth) 13 Twigs andstraw(closedhearth) 16 Twigs andstraw(open hearth) 13 Charcoal16 Dungcakes8

Biogasstove55

Source: http://www.terienvis.nic.in/stat_table/stat_tab.htm#1_5 Ifri, 2009

170 Energyin India’s Future:Insights

000 000 A ll 1 000 1 000 2 1 000 31 31 2 1 000 NR 1 2 000 1 2 000 1 2 000 22 1 2 000 54 e s l a ss 2 31 85 9 2 1 000 0 31 5 00 49 858 8 02 634 53 2 1 000 45 2 1 000 3 0 91 2 84 E le c tri it y O thers o c ioe onomi cc ts e r en a l r e s ) rur o r diff gf 11 0 14 00 0 4– 5( h t in Ga s Ca n d le ig 20 in o ur c el oil 0 11 20 14 20 13 200 20 15 jo rs O ther B 2 . Ma b le Ta 2 7 1 0 17 36 0 1 02 4 0 7 20 15 46 2 1 02 54 0 3 02 687 K erosene 0 137 0 19 22 0 5 31 0 591 0 644 0 444 0 7 15 N o x pen d it u re a rr ngement ( 200 7). Ca pit aE

NSSO c l a sses 0 - 2 35 C l a ss * MPCE onthl y P er 69 0 -89 00 58 0 -69 00 51 0 -58 00 455-51 00 41 0 -455 365-41 00 3 20 -365 2 7 0 -3 20 2 35- 7 00 89 0 -1155 A ll 1155-more Ifri, 2009 *M S o u r c e :

Appendix 171

000 000 000 A ll 1 000 1 000 1 000 0 1 000 0 1 000 0 1 000 2 1 000 51 NR 0 31 3 2 1 000 11 1 0 000 2 51 14 11 e s l a ss 78 83 2 16 994 99 0 1 000 97 20 946 9 0 81 814 718 9 2 31 E le c tri it y O thers o c ioe onomi cc n a r e s ) o rs ba gf ur h t in ig 0 58 0 4– 5( Ga s Ca n d le 20 o ur c el in jo rs oil 1 0 19 11 0 93 22 220 2 11 1 02 4 02 111 00 66 B 3 . Ma O ther b le Ta 6 0 11 3 0 1 991 8 000 74 18 63 49 1 0 41 K erosene 0 3 000 02 0 87 0 177 02 0 71 0 361 N o x pen d it u re a rr ngement ( 200 7). Ca pit aE NSSO

c l a sses 0 -335 C l a ss * MPCE onthl y P er 675-79 00 79 0 -93 00 58 0 -675 485-58 00 395-485 335-395 93 0 -11 00 188 0 - 2 54 00 138 0 -188 00 11 00 -138 A ll 2 54 0 -more S o u r c e : *M Ifri, 2009

172 Energyin India’s Future:Insights

000 000 000 000 000 000 000 000 000 A ll 1 000 1 000 1 000 11 31 51 51 71 31 71 NR 22 5 2 1 000 93 45 O thers 02 1 2 63 0 33 E le c - tri c it y e s l a ss 3 2 1 0 11 51 20 ene K ero- 0 15 0 9 02 0 8 44 0 7 5 51 0 3 51 0 13 o c ioe onomi cc c o a ls C h a r- ts e r en a l r e s ) 413 813 11 20 0 3 6 34 7 20 1 0 4 5 46 1 00 rur o r diff gf 0 4– 5( 68 2 81 2 94 11 0 1 9 43 2 99 0 96 2 91 g a s ca ke 20 G o ba r D u ng in o ur c e ookin 81 20 20 PG 91 57 16 31 43 39 2 76 2 7 0 77 159 jo rs Ma B 4. 33 76 93 19 5 0 86 84 764 815 797 818 8 2 83 a n dL c hips b le F ire w oo d Ta e , 17 0 8 00 54 95 87 37 c o a l C ok x pen d it u re 79 76 56 11 53 13 85 N o ment rr a nge- c ooking ( 200 7). Ca pit aE NSSO

c l a sses 0 - 2 35 C l a ss *a MPCE onthl y P er 69 0 -89 1 2 686 58 0 -69 79 51 0 -58 61 455-51 0 11 365-41 0 46 41 0 -455 3 20 -365 2 7 0 -3 20 2 35- 7 0 1 58 89 0 -1155 A ll 1155-more *M S o u r c e : Ifri, 2009

Appendix 173

000 000 A ll 1 000 1 000 1 000 1 000 31 NR 1 0 000 4 2 1 000 8 0 1 000 2 31 87 5 2 1 000 O thers 2 9 0 1 000 2 9 0 1 000 37 2 1 000 159 2 51 11 11 1 2 61 2 11 E le c - tri c it y e s l a ss 33 0 3 02 17 66 ene 113 154 K ero- 0 131 11 11 0 73 0 6 2 13 0 1 02 o c ioe onomi cc c o a ls C h a r- ts n a r e s ) e r en 31 31 ba ur o r diff gf 0 4– 5( 020 0 3 84 0 3 1 13 0 16 02 0 34 0 59 0 47 0 17 g a s ca ke G o ba r D u ng 20 in o ur c e ookin 19 83 35 2 1 0 37 PG 58 744 615 544 4 2 1 02 111 571 jo rs Ma B 5. 2 8 1 020 78 65 17 38 66 9 2 7 0 4 1 74 53 22 686 a n dL c hips b le F ire w oo d Ta e , 81 3 2 49 93 16 11 51 9 2 67 18 4 0 2 63 45 2 8 17 c o a l C ok 83 x pen d it u re 41 2 34 1 2 67 2 96 67 49 N o 135 ment rr a nge- c ooking ( 200 7). Ca pit aE NSSO

c l a sses 0 -335 C l a ss *a MPCE onthl y P er 79 0 -93 3 02 675-79 02 58 0 -675 485-58 0 13 395-485 335-395 93 0 -11 00 188 0 - 2 54 78 138 0 -188 81 11 00 -138 0 5 2 15 A ll 2 54 0 -more *M S o u r c e : Ifri, 2009

174 Energyin India’s Future:Insights

of %) 3.64 0 .49 0 .19 2 .74 le c trifie d 65. 0 6 56.7 0 4 0 .1 43.69 2 6.9 4 2 . 7 15.85 15.76 14.51 v ill a ge 0 1( ne ho u sehol d s ele c trifie d in P er c ent a ge 20 in s e ts 9.64 9. 00 1.66 9.44 99.84 97. 0 76 99.9 2 59.61 99.67 96.3 0 4 2 .39 46.5 2 14. 0 8 95. 0 93 78.17 74.98 77. 0 51 p u mp v ill a ges ele c trifie da P er c ent a ge s a nd a ge sets S ets -7 -9 0 6 .45 nergi z e d . otenti a l 0 .46 6.15 d s , v ill 95.74 44.88 97.65 14.15 17.16 er c ent a ge 1 0 3.74 fp energi z e d b ee P u mp to ho us ehol of 7.49 9.98 0 . 2 5 20 .4 71. 02 t ion f T ot a l sp 63.6 0 1.76 67.17 6 0 . 4 .1 2 91.7 48.17 53.1 0 -9 54.69 4 2 .74 41.84 37.45 2 4.3 0 ––– o u sehol d so P er c ent a ge ifi ca ele c tr of s of 8.15 9.56 a tu 94. 2 87 9 0 .33 89.99 81.99 9 0 .9 2 6 .33 89.4 2 54.69 8 2 .85 94.4 2 69.63 89.61 86.36 79.9 2 31.9 0 31. 57 74. 0 8 2 6.91 74. 2 9 4.9 0 1.45 75.61 59. 2 81 st o u sehol d sh P er c ent a ge P ) a nd u r a l U ba no 9.99 2 .3 9 . 66 4.14 0 . 2 68 0 . 2 77 9.84 9.35 fr 65.17 56.88 59.65 5 2 .53 5 0 .35 44.53 46.11 31.75 44. 02 16.54 er c ent a ge ele c trifie d p u mp ho u sehol d sh i c p r od u t ( NSD st 00 R so ome in ca pit aP 445 154 763 1 22 34 0 5.13 0 5 54 0 38 02 77 0 86 9331 74 00 56 0 31 999– 20 P ri c es 1 0 639 t a ed P er NSDP a t1 B 6 . N e ts a l1 r ad esh a n d r ad esh a rh b le h a l P r ad esh

Ta B eng U nion S t a te T erritories g a l n d 11674 Ma h a r shtr 14656 Mad h y aP A n d hr aP Na Ma nip u r7 A r u n ac C hh a tisg U ttr a n c h l8 M i z or a m1 T rip u r a 9664 Ra j a sth n8 M egh a l y 99 0 53 W est U tt a r P ad esh O riss a 58 0 31 A ss a m6 J h a rkh n d 6587 B ih a r3 Ifri, 2009

Kerala1076265.53 84.34 70.2493.18 100.35 65.53 Appendix Andamanand 15679 68.0995.22 76.78 NicobarIslands Tamil Nadu12484 71.18 88.00 78.18 106.10100.35 71.18 Gujrat1332172.1293.39 80.41 94.00 99.51 71.76 Karnatka11857 72.16 90.53 78.55 95.15 98.87 71.34 Jammuand 755274.77 97.95 80.608.36 97.5072.90 Kashimir Sikkim 10415 75.02 97.0977.76 090.6067.97 Haryana1422878.5092.94 82.9090.79 100.35 78.50 Pondicherry2282781.0191.41 87.81 --– Dadarand 82.63 95.84 85.99 NagarHaweli - --– Delhi 26516 85.5093.38 92.86 --– Punjab 1530889.46 96.49 91.91 108.02 100.35 89.46 Goa2760392.43 94.73 93.57 88.04100.35 92.43 HimachalPradesh 1132694.48 97.38 94.8246.56 99.35 93.87 Chandigarh-97.41 96.7096.77 --– DamanandDiu-97.46 98.31 97.76 --– Lakshadweep -99.74 99.67 99.71 --– Total10754 43.5287.59 55.85 66.57 86.65 37.71

Source: ReserveBank of India 1 ,Planning Commission (2002)andCensus(2001). 175 1. http://www.rbi.org.in/scripts/AnnualPublications.aspx?head=Handbook%20of%20Statistics%20on%20Indian%20Economy 176 Energyin India’s Future:Insights

Electricitycertainlybeing the sector where the bulk of the reforms are going the slowest,wesuggest here some more detailedrecommendations forreform. The boxbelowlists anumber of reforms thathavebeen recommended, asadesirable set byagroupofexperts from CSH (NewDelhi),IIMsAhmedabad andBangalore,IIT Kanpur,XIM Bhubaneshwar,ASCI andIPE Hyderabad in Ruet (2003). Reforms thathavebeen introducedsincethen are in parentheses.

BoxB1 The proposals are groupedbyoperational,managerial,and regulatorymeasures,andprovideaself-consistent framework for reform. Most of them are viable in themselves.Together,they providepositiveexternalities andvirtuouscircles,andare definitely profitable.

A–Operation/Technical •Formulate technicalstandardsandnorms of specifications of the materials andoperation (goodprogress on this). •Institutionalizemetering forall consumers,andconvert billing on average into billing on actuals (completed, officiallybutslow progress). •Outsourceauxiliaryservices (verylimitedexperiments). •Promote demandsidemanagement (limitedfunding schemes). •Develop benchmarking techniques forevaluation of SEBsefficiency (not reallyattemptedyet).

B–Management •Develop andclarifyimplementation of internalaudit (verylimited progress). •Establish clearinternalguidelines on duties andresponsibilities, anddevelop the commercialfunction atthe divisionallevel (with fewexceptions,verylimitedprogress). •Develop viable business units basedon the concepts of decentraliza- tion andprofit centers (with fewunsustainedexceptions,no progress). •Strengthen andactuallyimplement adelegation of power in the use of resources (with fewexceptions,verylimitedprogress).

•Amendthe electricitybill to appoint amajorityof externaland professionaldirectors forthe board (not done). Ifri, 2009

Appendix 177

•Appoint adirector to represent the consumers (not done). •Ifprivatization is thought of,prefer management contractwith specificlegalandfinancialprovisions on hiring externalpeople andcommitment of financialresources to optimizerevenues (this ideanot pickedup). C-Regulation andinstitutionalenvironment •Promote open access andwholesale competition on multi-buyer model (manyopenings towardthis). •Removecurrent distortion between NTPC andIPPsinfinan- cialreturns andguarantees (done), •Reviewguarantees forIPPs,create anenvironment where IPPs will beglad to take the business risks (done). •Encourage RegulatoryCommissions to go forpricebasedregu- lation rather thancost basedregulation (or the RPI minus Xvariety),andexplore other market basedpricing mechanisms (goodprogress,though piecemeal). •Encourage RegulatoryCommissions to givemulti-yearformula andrules in tariffs fixing (some goodinitiatives). •Assess the feasibilityandmerits of directsubsidies (still arisky debate). These measures are designedto offer aspecificadvantage if seen asaunity.The technicalmeasures aim atensuring quickvisible results forthe consumer andthe SEBs’ agents,to generate asuppor- tiveatmosphere forthe reforms,andallowboth managerialandregu- latorymeasures.The managerialproposalwill givethe powers and means to Fieldagents forimplementing these technicalandcommer- cialmeasures in the most targetedmanner.Also,aphaseddelegation of power will ultimatelyfree the boardsof the dayto dayproblems andallowthem to concentrate on restructuring issues andevolution of the managerialorganization,aswell asevaluation of technical schemes.Inaddition to the structure,sounddialogueonlosses reduction andactualcompetition in afair environment are promoted. Under aclearandlasting framework,this allowsfor benchmarking andtransparent evaluation of delegation schemes,along with the afferent incentives,forboth the boardandthe fieldofficers. One sees that,in the 2000s,though the sectoralreform hasbeen seen in amore integratedfashion,from generation to distribution, there is still abiastowardtechnologicalandmarket-orientedsolu- tions withoutclearlyrealizing,that,however desirable theymight be, theycannot fullydevelop in the absenceofpreliminaryor comple-

mentarymanagerialreforms in the publiccompanies,or electricity boards. Ifri, 2009

178 Energyin India’s Future:Insights

AppendixC—Glossary,acronyms and abbreviations

Units b/dbarrels of oil per day BCM billion cubicmeters BU billion units Gini the “Gini coefficient” (aratio) is ameasure of statisticaldispersion GW gigawatt GWe1000 MWe Ha hectare HzHertz kcal/kg kilocalories per kilogram kWhkilowatt hours koekilograms of oil equivalent mcm/dmillion standardcubicmeters per day MGW megagigawatts mmt million metrictons mmt/amillion metrictons per annum Mtmetricton Mtoe million tons of oil equivalent MU million units MW megawatt MWemegawatts electric MWth megawatt of thermaloutput

Tcftrillion cubicfeet TWhterawatthour=abillion kWh Ifri, 2009

Appendix 179

GeneralTerms ABT availabilitybasedtariffs ADB AsianDevelopment Bank AEC AtomicEnergyCommission (India) AHWR advancedheavy water reactor AIE AgenceInternationale del’Energie (same asIEA) APM administeredpricing mechanism AT&C aggregate technicalandcommerciallosses BG biomass gasifier BG BG Group(UK, worldwide) BJP BharatiyaJanataParty(Hindunationalist polit- icalpartyin India) BP biomass power BPCL BharatPetroleumCorporation Limited CEA CentralElectricAuthority CEIL Cairn EnergyIndiaPtyLimited CEIS Center forEconomicandInternationalStudies CEPII ResearchCenter in InternationalEconomics (French) CERC CentralElectricityRegulation Commission CERNACenter forIndustrialEconomicsatthe Ecole des Mines deParis CHP Combinedheatplant CII Confederation of IndianIndustry CIL CoalIndiaLimited CMIE Center forMonitoring the IndianEconomyPvt. Ltd.

CNG compressednaturalgas CNPC ChinaNationalPetroleumCompany Ifri, 2009

180 Energyin India’s Future:Insights

CO2 carbon dioxide CPI -MCommunist Partyof India CSE Center forScienceandEnvironment (India) DAEDepartment of AtomicEnergy DGH Directorate GeneralofHyrocarbons DSM demandsidemanagement (electricity) DVCDamodarValleyCorporation (India) E&P exploration andproduction EDselectricitydepartments EFR Europeanfast reactor EIEBG Euro-IndiaEconomicandBusiness Group EPR Europeanpressurizedreactor ERCA ElectricityRegulatoryCommissions Act ESBWR economicsimplifiedboiling water reactor EU EuropeanUnion FBR fast breeder reactor FBTR fast breeder test reactor FDI foreign directinvestment GAIL Gail (India)Limited GDP gross domesticproduct GEF GlobalEnvironmentalFacility GHG green house gas GNP gross nationalproduct GNPOC Greater Nile PetroleumOperating Company GoIGovernment of India GSECL GujuratState ElectricityCorporation Ltd.(India)

GSPCL GujuratState PettroleumCorporation Ltd.(India) HDI HumanDevelopment Index Ifri, 2009

Appendix 181

HPCL HindustanPetroleumCorporation Limited HWR heavy water reactor IAEA InternationalAtomicEnergyAgency(United Nations) IEA InternationalEnergyAgency IFC InternationalFinanceCorporation (Washington) IGCC integratedgasification combinedcycle (power plants using syntheticgas) IISCO Steel plant ;whollyownedsubsidiaryof SAIL (Steel Authorityof IndiaLtd.) IMF InternationalMonetaryFund IOC LtdIndianOil Corporation Limited IPCC IntergovernmentalPanel on Climate Change IPI Iran-Pakistan-Indiapipeline (proposed) IPPsindependent power producers IREDAIndianRenewable EnergyDevelopment Agency Ltd.(Government of India) kVd/ckilovolts directcurrent LNG liquefiednaturalgas LPG liquidpropane gas LWRlight water reactor MES modern energyservices MNES Ministryof Non-conventionalEnergySources MNRE Ministryof NewandRenewable Energy Mobil-IOC Mobil Oil/IndianOil Corporation partnership MoCMinistryof Coal MoPNG Ministryof PetroleumandNaturalGas

NCAER NationalCouncil forAppliedEconomicResearch (India) Ifri, 2009

182 Energyin India’s Future:Insights

NCDC NationalCoalDevelopment Corporation (India) N-DealIndo-U.S.civiliannuclearcooperation agreement NELP NewExploration Licensing Policy NGG NationalGasGrid NGOsnon-governmentalorganizations NHPC NationalHydro Power Corporation (India) NIKONIKOResources Ltd.(Canadian) NOCsnationaloil companies NPCIL NuclearPower Corporation of India, Ltd NPT NuclearNon-Proliferation Treaty NRC NuclearRegulatoryCommission NRL Numaligarh Refineries Ltd. NSG NuclearSuppliers Group NSSO NationalSample SurveyOrganization (India) NTPC NationalThermalPower Corporation (India;15% publicownership) O&M operations andmaintenance OECD Organization forEconomicCo-operation and Development OGJ The Oil andGasJournal OIL Oil IndiaLimited OMCsoil marketing companies ONGC Oil andNaturalGasCorporation (India) OVLONGC Videsh Ltd.(India;asubsidiaryof ONGC) PCE primarycommercialenergy PDS publicdistribution system (e.g.,kerosene) PFBR prototype fast breeder reactor

PFC Power FinanceCorporation Ltd.(Government of India) Ifri, 2009

Appendix 183

PGCIL Power GridCorporation of IndiaLimited PHWR pressurizedheavy water reactor PLF plant load factor PLWR pressurizedlight water reactor PPP purchasing power parity PV photovoltaics(solar) RES renewable energysources RETsrenewable energytechnologies RIL RelianceIndustries Ltd. SAIL Steel Authorityof IndiaLimited(India) SCCL Singreni CollieryCompanyLimited SEBsstate electricityboards SERC State ElectricalRegulatoryCommission SHP small hydro project SIAM Syndicate of IndianAutomobile Manufacturers SIFCOR Frenchforge companyrecentlybought byBharat Forge SMEssmall andmediumenterprises

SO2 sulpher dioxide SREI SREI Infrastructure FinanceLtd. SREU SREI Renewable EnergyUnit Ltd. T&D transmission anddistribution networks TERI TataEnergyResearchInstitute TERI The EnergyandResources Institute (India) TPCES totalprimarycommercialenergysupply TPES totalprimaryenergysupply

TPNCES totalprimarynoncommercialenergysupply U&I urbanandindustrial(asinwaste power) Ifri, 2009

184 Energyin India’s Future:Insights

UNDP UnitedNations Development Program UNFPAUnitedNations Population Fund UNIDO UnitedNations IndustrialDevelopment Organi- zation UTsUnion Territories (India) VVER Russianpressurizedwater reactor (PWR) w.r.t.with regard(or respect) to WBCSD WorldBusiness Council forSustainable Devel- opment WEO WorldEnergyOutlook

Ifri, 2009

Table of illustrations

Figures Figure 1. India’s energyprimaryresources andenergy use ...... 34 Figure 2.Domesticconsumption andproduction of crudeoil...... 35 Figure 3. Power-supplyposition:Energy...... 42 Figure 4. Fuel mixcomparison in year2031-2032...... 44 Figure 5. Projectedelectricitygeneration (BkWh)...... 47 Figure 6. India2025:The three scenarios ...... 52 Figure 7. Primary(commercial) energyconsumption andGDP of India...... 62 Figure 8. Evolution of commercialenergyuse ...... 63 Figure 9. Energyuse per $1,000 of GDP (in PPP)...... 70 Figure 10.Commercialenergyconsumption per capita.. 72 Figure 11. The rise of ruralelectrification...... 75 Figure 12.Socioeconomicdisparities in access to electri- cityandLPG...... 79 Figure 13. State distribution income per capita, average electricityconsumption andgovernanceof State ElectricityBoards...... 82 Figure 14. Comparativehumandevelopment indexin China, IndiaandBrazil ...... 86 Figure 15. Net imports of coal...... 105

Figure 16. Demand-supplygap:Crudeoil...... 107 Figure 17. Demand-supplygap:Naturalgas...... 107 Ifri, 2009

186 Energyin India’s Future:Insights

Tables Table 1. GDP andemployment distribution bysector ... 14 Table 2.Referencescenario of the WorldEnergy Outlook 2007...... 21 Table 3. Primaryenergymix(annualgrowth rate:5%) 22 Table 4. Selectedenergyindicators for2003...... 32 Table 5. Growth of motorizedtransport vehicles...... 36 Table 6. India’s hydrocarbon reserves...... 36 Table 7. Reserves/production of crudeoil andnatural gas...... 37 Table 8. Approximate potentialavailable from nuclear energy...... 39 Table 9. Electricityproduction capacityin India...... 40 Table 10.Scenario summaries for8%GDP growth...... 46 Table 11. Projections forelectricityrequirement ...... 47 Table 12.Elasticities andtotalprimaryenergyrequire- ment...... 49 Table 13. Renewable energyresources...... 55 Table 14. Capitalcosts of generatedelectricityfrom renewable options ...... 56 Table 15. Projectedprimaryenergyrequirements assuming GDP growth of 8% annually(in Mtoe).. 64 Table 16. Energyuse elasticitywith respecttoGDP regression using India’s time series ...... 64 Table 17. Sectoralgrowth rates of realGDP (1999-2000 prices) (%)...... 65 Table 18. Fuel forresidentialsector 2005(Mtoe)...... 68 Table 19. GDP per capitaforyear2005(US$)...... 69 Table 20.Number of persons undernourished(in millions)...... 86 Table 21. Potentialandinstalledcapacityof renewable sources ...... 87

Table 22.Per capitaCO 2 emissions (tons per person per year) ...... 90

Table 23. CumulativeCO2 emissions,1900 to 2002...... 90 Table 24. Production of coal(million tons)...... 104 Ifri, 2009

Table of illustrations 187

Table 25. Major corporate crudeoil andnaturalgas production in 2007(in Mtoe)...... 109 Table 26. Profitabilityof alternativestrategies to bridge the energygap(%) ...... 114 Table 27. The feasibilitydomain of management contracts andprivatization...... 117 Table 28. Emergenceofnewentities in the post 1990s period...... 121 Table 29. Production of crudeoil byfirm (%)...... 122 Table 30.Production of gasbyfirm (%)...... 122 Table 31. Marketing of petroleumproducts byfirm (%).... 122

Ifri, 2009

Miseenpage etimpression bialec , nancy(France) Dépôtlégaln°71763 -juillet2009 Ifri, 2009

les études

Energyin India’s Future: Insights GOUVERNANCE EUROPÉENNE ET GÉOPOLITIQUE DE L’ÉNERGIE

Inthe decades following India’s independencefrom British rule in 1947,the West’simage of Indiawassummarizedin three simple clichés :the world’s largest democracy,animpoverishedcontinent, andeconomicgrowth hamperedbyafussybureaucracyandthe caste system,all in acontextofaparticularreligion. These clichés are perhaps one of the reasons thatthe success of India’s green revolution wasrecognizedso late,arevolution thatallowedthe countryto develop its agriculturalsector andto feedits population. Sincethe 1990s,the easing of planning constraints haveliberatedthe Indianeconomyandallowedit to embark on amore significant path of growth. Newclichés havebeguntoreplacethe old: Indiawill become asecondChinaand, lagging by10to 20 years,will followthe same trajectory,with its development markedmore byservices and the use of renewable energy. However,these trendswill not prevent primaryenergydemandfrom exploding.Onthe contrary,Indiafaces difficult choices on howit increases clean,secure,affordable energyto all its citizens.Manyof the choices are the same asfoundelsewhere,butonascale matchedonly byChina. The IFRI EuropeanGovernanceandGeopoliticsofEnergyProject intendsthis studyto deepen publicunderstanding of the magnitude of India’s challenges. With contributions byNicolasAutheman,Jean-Joseph Boillot,Michel Cruciani,Maïté Jauréguy-Naudin,Jacques Lesourne,Joël Ruet,Zakaria SiddiquiandC.Pierre Zaleski.

Prix: 15 f Diffusion: ISBN 978-2-86592-371-7 La Documentation française 29-31,quaiVoltaire 75340Paris Cedex07 Tél. :33 (0)1 4015 7000 -:HSMIQF=^WX\V\: Fax:33 (0)1 4015 68 00 www.ladocumentationfrancaise.fr