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Integrated Energy Policy

India needs to sustain an economic growth of at least 9 percent over the next 25 years if
it is to eradicate poverty and meet its larger human development goals. The primary energy
supply (including gathered non-commercial such as wood and dung) must increase at the rate of
5.8% annually for fuelling the growth. Meeting this requirement is a challenge which needs to be
addressed through an Integrated Energy Policy. The broad vision behind the Integrated Energy
Policy is to reliably meet the demand for energy services of all sectors including the lifeline
energy needs of vulnerable households in all parts of the country with safe, clean and
convenient energy at the least-cost.

Salient features of the Policy:

ð Provide appropriate fiscal policies to take care of externalities and independent


regulation to take care of anti-competitive market behaviour.

ð Both the tax structure and regulatory philosophy applied in each energy sector
should be consistent with the overall energy policy should provide a level playing field to all
players whether public or private.

ð Taxes should be neutral across energy sources except where differentials in taxation
across energy sources are specifically intended to counter differential externalities, such as those
reflecting environmental externalities.

ð Subsidies must be transparent and targeted. Consideration should be given to


alternative means of achieving the social objectives sought to be achieved by energy subsidies.

ð Promote energy-efficiency by enforcing energy standards effectively.

ð PSUs operating in the energy sector must operate with autonomy and also full
accountability to ensure incentives for adequate investment through their own resources and
improvements in efficiency in energy production and distribution.
ð India will have to pursue all available fuel options and forms of energy and must
seek to acquire new energy sources abroad.

ð India must actively promote technologies that maximise energy efficiency, demand
side management, conservation and energy security and this must be done by encouraging
domestic research into such technologies and free access to suitable energy related technologies
available abroad.

ð For economic efficiency and for promoting optimal investment in energy, energy
markets should be competitive wherever possible. Competitive markets would lead to trade
parity prices ensuring that energy use and inter-fuel choices would be economically rational. But
a truly competitive market requires that there are multiple producers and that there are no
entry barriers to new producers or to imports.

ð Energy prices must send the right signal to producers and energy users to conserve
energy and, where relevant, switch to preferred sources.

ð Prices of all commercial primary energy sources which are tradable should be set at
trade parity prices at the point of sale.

ð A phased adjustment of domestic petroleum prices to trade parity prices must be


undertaken in a relatively short period.

ð Coal prices should ideally be left to the market and trading of coal, nationally and
internationally, should be free. Coal prices should be made fully variable based on Gross Calorific
Value (GCV) and other quality parameters instead of the current system of pricing on the basis of
broad bands of useful heat value.

ð Trade parity principles cannot be easily applied to Natural Gas because it requires
significant investments in pipelines or, alternatively, in liquefaction, cryogenic shipping & re-
gasification for trading. Natural gas price can be determined through competition among
different producers where multiple sources and a competitive supply-demand balance exist.

ð Reduce technical and commercial losses in transmission and distribution utilities.


ð Separate the cost of the pure wires business (carriage) from the energy business
(content) in both transmission and distribution.

ð All generation and transmission projects should be competitively built on the basis
of tariff-based bidding.

ð Set multi-year tariffs and differentiate them by time of day tariff.

ð Incentives for promoting renewables should be linked to outcomes (energy


generated) and not just outlays (capacity installed). Alternative incentive structures such as
mandated feed-in-laws or differential tariffs or specifying renewable portfolio percentage in total
supply would encourage utilities to integrate wind, small hydro, cogeneration etc. into their
systems.

ð Fuel wood plantations, bio-gas plants, wood gasifier based power plants, bio-diesel
and ethanol should be promoted.

ð Set-up a National Energy Fund (NEF) to finance R&D in Energy sector.

ð A number of technology missions including Solar Energy Mission should be


mounted for developing near-commercial technologies and rolling out in a time bound manner
new technologies that emphasise nationally relevant sources of energy.

ð Ensure energy security by

- lowering the requirement of energy,

- substituting imported fuels with alternatives,

- expanding the domestic energy resource base,

- maintaining reserve equivalent to 90 days of oil imports,


- building strategic stockpile of nuclear fuel to counter the risk of disruption of
international fuel supply,

- acquiring energy assets abroad and setting up energy using industries such as
fertiliser plants in energy rich countries.

ð Provide electricity to all rural households through Rajiv Gandhi Grameen


Vidyutikaran Yojana (RGGVY) and clean cooking energy such as LPG, NG, biogas or kerosene to
all within ten years.

ð Subsidy for electricity and cleaner fuels, kerosene or LPG to targeted households
should be delivered through a system of debit card in phased manner.

ð A large scale socio-economic experiment should be financed to operate community


sized bio-gas plants as a commercial enterprise either by a community cooperative or by a
commercial entrepreneur. Bio-gas plants on this scale could meet the need for clean cooking
energy of a sizable segment of the rural population.

ð Recommended initiatives would have effect on reducing the green house gas
intensity of the economy by as much as by one third.

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