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Submission for

Crisil Young Thought Leader Series 2005


The need for Comprehensive Energy Strategy

By
Dinesh Jhawar
MBA Full Time Student 2004-06
Second Year
Narsee Monjee Institute of Management Studies,
Mumbai

Email Address:
dinesh.jhawar@gmail.com
October10th, 2005

Table of Contents

Particulars

Page Number

Executive Summary

Core Principals

Industry Sectors

Recommendations

Conclusion

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Bibliography

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Authors Profile

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Executive Summary
The need for defining an effective and comprehensive energy strategy for India is now an
urgent imperative. Not only are there growing uncertainties about the stability and
security within the global energy market but the expectations and aspirations of the
Indian people for a much higher rate of growth also require a stable, low-cost, and secure
supply of energy. The demand for energy is growing to increase significantly in an era
where the GDP of India is expected to grow to USD 2 trillion by 2020 from the current
level of USD 500 billion. For this reason it becomes essential for India to be energy
dependent.

With 70% oil import and 75% usage of coal for power generation, the economic and
ecological distortion caused is huge. Thus there is a need to shift from these energy
sources. The answers to these are natural gas, nuclear power, renewable energies and biofuels all of which have huge potential in India. For utilisation of these new energy
sources huge investments are required. There is also a need for private participation in
this sector with the help of the government.

The need for the hour is a unified policy. This should aim at an energy strategy which
would serve the objectives of equity, security, efficiency, and environmental protection.
This paper tries to analyse the objectives and try to see how all the different sources of
energies can be optimally used. It tries to find out the vacuum that needs to be filled to
have a sound integrated energy strategy which is reliable and environmentally
responsible.

Core Principles
The integrated energy strategy should be anchored in four core principles:

Energy Security: To meet the energy needs of all segments of Indias population
in the most efficient and cost-effective manner while ensuring long-term sustainability
With the economic effect of fluctuating oil prices it is a serious issue for consideration in
security of energy supply. So in short term focus should be on efficient use of energy and
adequate storage of energy, particularly oil and oil products on which Indias import
dependence is serious. This will become an important supply-side option. The long term
option that needs to be exploited is to shift to greater use of other forms of energy which
will be reliable, affordable and environmentally sustainable. Energy security can be best
achieved through diverse supplies of all forms of domestic and international energy.

Energy Equity: According to World Bank Report 2001, about 700 million people in
India are deprived of modern energy forms. But energy of good quality should be
available and accessible to them so that they are able to meet their needs, particularly of
cooking fuel and basic lighting. To achieve this a few things should be achieved. Firstly,
policies should me made to ensure that modern technology is available to them, even at
low income levels. Secondly, there is a need to make a formal market structure in rural
areas for alternative energy options. Thirdly, the energy is to be made affordable for them
but not through subsidization. Other means have to be established to provide cheap power
to only those who need it and is not used by wrong people.

Energy Efficiency: Energy efficiency would encompass all measures that would bring
about efficient use of energy resources leading to a reduction in the need to produce
energy. This would include production, conversion, transmission/transportation, and
consumption efficiencies as well as any measures that can be put in place to reduce the
level of demand itselfpeak or otherwise. In this sense, energy efficiency measures
should not only enhance energy security by spreading available energy resources over a
longer period of time but also mitigate environmental impacts and reduce the cost of
energy delivery. Another factor affecting efficiency is energy pricing. All sub sectors use
a different method of pricing and environmental cost is always ignored. A mixed
approach is obviously not conducive to promoting either an efficient allocation of
resources or to promoting competition.

Energy Technology: Research and development can spur improvements in energy


technologies that produce long-term cost-effective solutions to many environmental
concerns. Research to address environmental problems and to expand energy choices is
an appropriate and essential role for government. Partnerships between public and private
sectors (domestic and international) can also speed this process. New technologies must
be given the priority to reduce the reliance on fossil fuels and meet the challenges of
efficiency and emissions. Research should be made in the field of making technologies
like hydrogen operated vehicles commercially viable as these can be answer to the
increasing pollution.

Industry Sectors

Coal: is the major source for the power sector but is not environmental friendly. But with
huge deposits of coal this is our primary fuel. This energy source should be effectively
used. In a conventional thermal power plant, only 35% of the coals energy is converted
into electricity. But if the coal is first gasified and then used in a combined cycle power
plant, the efficiency of energy conversion can rise to 40-45%. The same coal will yield
far more electricity. That is the path India needs to take.

Crude Oil:- Since Indias major energy imports are in the form of crude oil, the specific
issues relating to oil need special mention. The choices available to increase oil security
include the following:

Establishment of a strategic oil reserve

Diversification of sources of oil imports

Investment in equity oil abroad

Enhancement of domestic supply.

Natural Gas: It is a clean and a viable source of energy which is now days used
abundantly in transportation, in power sector and as a cooking gas too. Importing natural
gas through pipelines may be cheap, but it does not provide energy security to India. We
have huge reserves in the Krishna-Godavari basin which needs to be explored to provide
cheap and environmental friendly natural gas.

Nuclear Power: The recent landmark deal with US has made nuclear energy, the future
energy for the power sector. The target of 20,000 mw of nuclear power generation
capacity suddenly appears to be feasible and achievable. With the reserves of coal and
hydrocarbons coming down, nuclear energy seems to be the answer for the power sector.
It is also preferred as it is environmentally viable and leads to energy security. For this
the government should revisit The Atomic Energy Act of 1962, to consider private-public
partnerships that will allow technology transfer, absorption and plant operation to be
efficient.

Renewable Energy: Accounted for only 6000 mw in 2004. There is a huge potential that
needs to be tapped. It will enhance the energy security and efficiency and is also
environmental friendly.

Bio-fuels: Jatropha is the bio-fuel which has oil content upto 30% and can be planted
on wastelands. Government has made available 33 million hectares of waste land for its
production. Even the Railways have planted 75 lakh Jatropha saplings and are running
two passenger locomotives with a blend of 5% bio-fuel.

33 million hectares
allotted for plantation

Use of biodesel is
completely CO2 emission
free, the CO2 fixed by the
plantation could be used in
emissions trading.

Can be grown on these


wastelands with little
input
Yields of upto 5 t/ha
oilseeds possible under
optimum conditions

JATROPHA

If potential fully realised


Indias current annual
diesel requirement (40
million tonnes this year)
could be fully met.

Produces 2 tonnes of bio


diesel that could be used
in automobiles, other
agro-industrially useful
by-products

Thus leading to
Energy Security
and Increase in
Energy Efficiency

Recommendations
1) Integration of ministry The energy sector in India, at the apex level is
administered by five ministries. Coordination and integration is achieved within the
Government of India through the Cabinet and the Planning Commission. This
structure has evolved over time but has also led to a vacuum as far as a coordinated
vision and sustained action is concerned. The policies and plans look like an
aggregate of sub sectors rather than an integrated view of the sector as a whole.

There are four major elements of an integrated approach to strategy-making,

Pricing - The pricing of different forms of energy has to be carried out within
an integrated framework and prices have to be determined by the markets.
This also has to include the environmental costs.

Substitution - There are possibilities of substitution between different forms of


energy. This inter fuel substitution is to be determined by relative pricing and
a desirable mix of energy sources should guide pricing decisions.

Policies To form effective policies it is important to have an integrated


policy system for all sectors of energy. For example: Regulatory reforms in
the coal industry if not accompanied by similar reforms in the power industry
will not lead to effective outcomes and promote efficiency.

Technology - Technology is an important determinant of energy futures, and


hence policy-making across all fuels and forms of energy must rest on a basis
of technology. The government has to fund to a great degree for R&D in this
area. Such funding relates to both the demand as well as supply sides of the
energy chain. This would alter the mix of energy demand substantially.

2) Investments: Enormous capital investments in all forms of energyfossil fuels,


nuclear energy and renewable energywill be required to fuel the Indian
economy during the early decades of the 21st century. To meet the Planning
Commissions projection of 7.4 % economic growth in the period 1997-2012,
there has to be a commensurate growth in commercial energy sources which
would require a fresh capacity addition of 100,000 MW and an investment of
$160 billion. These investments will be needed in all phases of the energy sector,
from production to generation to storage to transmission and distribution to
improved end-use efficiency. This will help to meet the growing demand in the
future. This calls for massive investments in infrastructure creation through
efforts from public, private sector and joint partnerships. The investments would
also need the policy makers to work towards creating an environment with
appropriate policy, legislative and regulatory framework. This will make the
energy sector a driver of economic resurgence.

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Where are investments required?

Government has to invest significantly in the pipelines carrying Natural Gas


from neighbourhood countries.

With Reliances discovery of natural gas in the Krishna-Godavari basin and


the prospects of further reserves being found in the same area, investments are
needed for further exploration.

With a very small reserve of crude oil and to gain energy security, India is
acquiring oil fields abroad that require huge investments.

Investments are required to have R&D centres to meet the potential of


renewable source of energy and to save energy in selected industries.

Renewable Energy Potential In India


Source / systems

Approximate
Potential

Energy Substitution
Potential

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Energy Savings Potential in Selected Industries/Sectors

Industry

India
(Gcal/tonne)

World
(Gcal/tonne)

Government alone cannot make these huge investments. It requires support from the
private sector. These are some measures government can take to attract private
investments:

Creating an investment-friendly environment with appropriate policy, legislative and


regulatory framework.

For public and private entities to coexist and compete, the government must ensure
that the regulatory framework is effective and generates sufficient degree of
confidence in investors.

To build confidence in private sector, government has to create more success stories
to demonstrate effective implementation of regulatory and contractual framework on
ground.

Private investment should be encouraged through flexible tax mechanisms or tax


incentives that ensure equitable opportunities for all energy sectors.

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3) Power at the Centre: With coalition politics present in the country for the last 15
years, there is always a weak government. Policies are formed not to serve
national interest but to serve interests of all the parties in the coalition. Politicians
should understand the importance of energy security and should make policies to
enhance it.

4) Diplomacy: Indias foreign policy should be dictated by national interests and not
by high morality and detached impartiality. India should have neither permanent
friends nor permanent enemies but only permanent interests.

5) Affordable Prices: Subsidies were thought to be the most efficient way to make
energy affordable. It has been seen over the years that subsidies are not reaching
the target populations. Now government is adopting a targeted distribution
system. This targeted population should be chosen with stringent criteria and the
rest need to choose from a specially designed set of services, tailored to meet their
end-use needs in quantities that they can afford.

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Conclusion
The energy policymakers, regulators, consumers and producers face critical policy and
investment choices in the decades ahead. In India increased demand outstrips reliable
supplies.

Technology is advancing at an unprecedented rate. Environmental regulations have


grown increasingly costly and complex. Energy companies confront greater competition
to meet the increased energy demands of our growing population and economy.
The proper response to these uncertain times is the development and implementation of
a sound Integrated Energy Strategy for India.

This strategy will deliver to consumers a ready, reliable and environmentally


responsible supply of affordable energy resources and energy-related services from a
broad range of energy providers.

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Bibliography
1. A Seminar by CII on Energy Value Chain : Moving towards Cohesion and
Regulation held on 29th march, 2005 in New Delhi
2. A speech given by Shri Mukesh Ambani in World Oil & Gas Assembly.
3. Speech given by The President, Mr. A.P.J Abdul Kalam on the Independence Day
2005.
4. Various articles from Economic And Political Weekly.
5. Various articles by Swaminathan S. Anklesaria Aiyar from The Times of India.
6. www.business-standard.com
7. www.site.securities.com

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