Energy in Transition – Session 5

Sustainability & Circular Economy

Sambit Basu
Professor - Energy Economics & Policy
NTPC School of Business, Noida
Evolution of Energy Sector in India
 Evolution of the Energy Sector

Traditionally, Energy Sector evolved as a Linear Economy

Take Make Reject

Evolution involved depleting natural resources, wastage & environmental degradation, increasing economic
risk, putting population at risk, non-sustainable future
Questions that define the present transition:
• How to overcome damaging effects of pollution & climate change along the desired growth path?
• How to meet the energy requirements of 1.4 billion people and sustain high growth economy?
• How best to provide basic amenities of the people?
• How to overcome primary fuel shortage and reduce import dependence?
• How to better utilize large energy gen capacities lying idle, as people are deprived of energy needs?
• How to prevent wasteful electricity use, and poor financial health of public utilities?
Answer was sought in finding a Sustainable Development Path, driven largely by:
• Energy Security (meet the energy needs of all without compromising the needs of future generation), with reduced
import dependence
• Energy Access
• Air Pollution, Environment & Climate Change
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 Gradual Move Towards Sustainable Energy Development

Harnessing Renewable Energy through a dedicated Ministry of New and Renewable Energy
Persistent efforts at Energy Efficiency improvement in Industry (including Power) & Transport
Efforts to make buildings energy efficient (eg. Energy Conservation Building Code or ECBC)
Recognizing India’s growing vulnerability to Climate Change, India put in place the most comprehensive
climate mitigation and adaptation plan through the National Action Plan on Climate Change in 2008:
• National Solar Mission
• National Mission for Enhanced Energy Efficiency (energy efficiency standards, etc)
• National Mission on Sustainable Habitat (urban planning, energy conservation building codes, automotive fuel economy
standards, etc)
• National Water Mission
• National Mission for Sustaining the Himalayan Ecosystem
• Green India Mission
• National Mission for Sustainable Agriculture (e.g climate resilient agriculture)
• National Mission on Strategic Knowledge for Climate Change

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 Energy Transition & Switch given a Major Push

India in UNFCCC on Intended Nationally Determined Contribution (INDC) has proclaimed 40% of cumulative
electricity capacity from non-fossil fuel by 2030; and pledged cut carbon emission intensity by 35% by 2030
RES target 175 GW by 2022 – 100GW Solar, 60GW Wind, 10GW Biomass, 5GW Small Hydro; 450GW by 2030
Renewables – 38GW Wind, 35GW Solar, 10GW Bio, 5GW small hydro – favoured by Policies and Incentives
• Solar bids for 1.07GW saw low tariffs of Rs 2/KWh and Rs.1.99/KWh for a 500MW project – due to zero safeguard duty and low-
cost financing amongst others; Wind lowest was Rs.2.64/unit
Largest Energy Efficiency Program - 36.26 crores LEDs distributed, saving 47101 GWh/year & Rs 18840Crs/year
resulting in 38.2 mn ton CO2 reduction; thrust in technological development of efficient equipment
As on 31.03.2019, all the villages (total 5,97,464 as per 2011 census) were electrified as compared to 5,97,121
electrified villages on 31.03.2018 accounting for 100.0% electrification in the country
Household electricity access achieved 99.93% in Sept’17 under the SAUBHAGYA scheme
Cleaner cooking fuel promoted – more than 3.06 crore poor women given LPG connections, with target of 5 crore by
2019 (further raised to 8 crore); and 5000 LPG distributors added in rural areas till July 2017
Fuel economy standards for motor vehicles that are sold in India are developed by the Bureau of Energy Efficiency
(BEE). Fuel economy standards have been adopted for passenger cars and for heavy-duty vehicles.
Vehicle emission norms were introduced in India in 1991 for petrol and in 1992 for diesel vehicles; Central Pollution
Control Board under the MoEF sets the Bharat Stage Emission Standards
• Since 2000, Euro norms are followed in India under the name Bharat Stage Emission Standards for four wheeled vehicles.

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 Low Carbon Electricity Generation by Source in India 1990 - 2019

Source: International Energy Agency, 2020

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 India: Energy Transition (BP Statistical Review 2019)
India is successfully implementing a range of
energy market reforms and carrying out a
huge amount of renewable electricity
deployment, notably in solar energy
Government has laid out an ambitious
vision to bring secure, affordable and
sustainable energy to all its citizens
Robust growth in population and prosperity
would result in primary energy consumption
to more than double to 1.9 Billion TOE in
2040
Industry followed by transport would be
biggest contributors to demand
Coal is expected to meet 48% of this new
demand, mainly through domestic
production
CO2 emission is likely to double to 5GT in
2040, and double its global share
Renewable energy is expected to jump
many fold led by solar

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 Sustainability synonymous with Circular Economy
Improve resource productivity
by keeping products and
resource use for as long as
possible through Reuse, Repair,
Remanufacture, Recovery,
Recycle

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 Sustainability & Circular Economy – Common Narratives

Shift to a qualitative growth characterized by circular, sustainable and highly competitive growth
Replacing old polluting infrastructure with a modern, clean and efficient one, across all sectors – water,
energy, construction, mobility, industrial processes, and agriculture
Renewable energy and clean technologies are a massive economic and industrial opportunity than the fossil
fuel-based economy riven with uncertainty and unpredictability
It is not just about doing more with less, but doing more with what we have solving the problem of resource
reutilisation
But we have also experienced two very contrasting and extremely intense phenomena
• During the Lockdown due to COVID-19, people saw clear blue skies & pollution free air – could also see the Himalayan
mountain range from Jalandhar more than 100 miles away
• But under lockdown the economy suffered miserably, and the growth is expected to decline by more than 10%

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Circular Economy in India – Select Issues & Challenges
Economic Slowdown, UDAY Failure & COVID-19: Affecting
Power Sector & State Finances
 Sector Woes Accentuated by COVID-19 & Lockdown

IMF and Moodys predicted a GDP contraction of 10.3% and 11.8% respectively in FY21 due to the pandemic
• Construction worst affected, followed by trade, hotel, transport, mining, manufacturing, financial
The loss may actually wipe out gains made from 1990s, and this has severe implications on the already weak
financial of the State & Discoms – stimulus of Government for demand revival has not been very encouraging
Massive fall in activities and demand for industry, commerce, construction, and slump in revenue collection
as these are the paying consumers accounting for about 70% of their revenues
Discom difficulties during lockdown with respect to the meter reading exercise, billing & bill delivery, and
collection of revenue – the ACS-ARR gap would go up, by some estimates upto Rs 0.83/KWh in FY21
Disruption in availability of labour and supply chain result in major delays for on-going projects
COVID-19 will create priority demand on stretched State Finances by other sectors
According to a Crisil Study, Discoms with high cash losses amid the Covid-19 pandemic will end up owing
lenders more than Rs 4.5 lakh crore or even higher by the end of FY21
COVID-19 has also brought about major transformative changes, many of it is permanent

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 Discom Liability a huge burden on State Finances

RBI wishes State Outstanding Liability as percent of GDP to go down to 20% under the Fiscal Responsibility
and Budget Management (FRBM) Act, this looks an uphill task given the burden of Discom liabilities
Discom liabilities at Rs 1.97 lakh cr form about 3.8% of the total outstanding liabilities of the State
Discom liabilities are large enough to push up the state outstanding liabilities to about 25% of the GDP
RBI in Report State Finances 2019-20 expresses concern on the sustainability of debt obligations & liabilities,
more due to unpredictability of the incremental Discom losses to be taken over by States under the UDAY
• Burden on state finances shall increase as States are mandated to take over 25% & 50% of Discom losses of FY19 & FY20
Burden on State Finance leaves limited scope for a fresh debt restructuring (a necessary moral hazard)
Debt position of states is such that sustainability of debt is vulnerable to invocation of State Guarantees
Huge State & Discom liabilities would also compromise on essential capital expenditure

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 Financial & Operational Performance of Select States

Overdue Amount (Rs UDAY Oustanding Total Less than 12 hrs

Cr) Outstanding Liabilities Bonds Liability Elec

Issued (Rs Percent Villages ATC Loss ARR-ACS Supply

<= 60days > 60 days UDAY (Rs. Cr) Cr) as Percent GDP (%) (%) (%) (Rs/Kwh) (BUs)
Andhra Pradesh 1374 2945 8256 8256 31.6 27.9 9.77 -1.04 5.8
Haryana 101 2731 25950 25951 26.3 57.1 17.44 0.05 2.9
Jammu and Kashmir 464 3877 3538 3538 48.2 76.6 47.88 -2.12 1.4
Jharkhand 10 514 5553 6136 26.0 91.6 33.96 -0.19 0.7
Karnataka 1855 3913 18.7 41.2 14.92 -0.24 7.5
Madhya Pradesh 52 1119 7360 7360 25.4 49.6 24.90 -0.28 5.8
Maharashtra 797 7562 4960 4960 16.9 51.3 21.32 0.06 13.3
Rajasthan 3432 29790 48936 72090 33.6 59.5 22.47 -1.16 5.8
Tamil Nadu 1905 13890 22815 22815 21.7 42.7 13.49 -1.15 9.3
Telangana 1877 5457 8923 8923 17.0 26.8 11.38 -0.74 7.1
Uttar Pradesh 1951 12041 39134 49510 38.1 72.9 30.30 -0.07 7.2
All India 16080 89040 197270 232163 24.9 52.7 18.80 -0.41 88.6

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 Failed UDAY undermining benefits of SAUBHAGYA Scheme

Pradhan Mantri Sahaj Bijli Har Ghar Yojana (SAUBHAGYA Scheme) 2017 introduced to provide last mile
connectivity to unelectrified households by Dec 2018
• All poor households, rural or urban, will receive free connection with meter (pre-paid or post-paid). Non-poor
unelectrified households can also get connection on payment of Rs 500.
• Unelectrified households in remote inaccessible areas get solar home-lighting system
• Scheme to use Central Government funding of 75% and remaining from Discoms/State
2.63 million households have been electrified by Mar 2019, and only 18,734 households remaining
Challenge is to provide 24x7 affordable energy supply to the electrified households, as supply is left to
Discoms & States with poor financial health, creaking infrastructure and expensive power purchase
Also, for remote areas inclusion of decentralized solar power home-systems with integrated battery cost
Rs.35000 per households, which with limited fund availability will be highly unviable
Unless livelihood improves, ability-to-pay for energy use remains a key issue
• Under the scheme there is no subsidy component for monthly electricity consumption, the gram panchayats & public
institutions will be billing & collecting
Survey data under Mission Antyodaya, a nationwide survey of villages conducted by the ministry of rural
development, finds that around 20% of households received less than 8 hours of electricity and more than
52% received less than 12 hours

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 Financial Hurdle of Discoms & States

Financial health of discoms & State Government biggest hurdle to successfully undertake
• Loss Reduction
• Distribution network strengthening – compromise on capex
• Improvement in supply quality – influencing willingness & ability to pay
• Promotion of energy efficiency and demand side management (utility reluctance)
• RPO obligation & expensive power purchase force demand suppression
Overcoming energy poverty more through quality supply at affordable rates is more important than access
Unless energy improves livelihood of the rural & poor people, energy sustainability is unlikely to happen –
Responsibility is with the State Governments, Agencies and Discoms
MW-size Solar plants being rapidly added, but roof-top and off-grid is yet to pick-up
State Fiscal Space is also extremely restricted

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Energy Storage
 Solar Panels, Energy Storage & Battery

Renewable Energy proliferation with integration to the grid & Electric Vehicle success depends on Energy
Storage or Battery Backup
Lithium is set to play a key role for both electric vehicles (EVs) and large-scale battery storage for renewable
energy production, besides Cobalt, Graphite and other Minerals
• Lithium is already being termed as White Petroleum
Demand for battery energy storage is expected to grow exponentially over the next 10-20 years and beyond
Lithium demand in 2018 of 270,000 metric tons of Lithium Carbonate Equivalent (LCE) is expected to reach
more than 1,000,000 metric tons of LCE by 2025, with some estimates as high as 1.5 million
U.S. contributes less than 2% of world supply of lithium even though it holds 17% of global lithium reserves
• Relatively low concentration of lithium in U.S. brines and lack of new technology to economically extract
World's largest reserve lies in the high mountain deserts of Bolivia, but large amounts of brines come from
sources in Chile and Argentina
• While over 50% of the entire world's reserves can be found in the Lithium Triangle (the brines located in Chile, Bolivia
and Argentina), access depends on geopolitical landscape
China is a very critical entity
• Over 80% of the global supply chain of rare earth elements, important minerals for electric vehicles and wind turbine
components, is controlled by one country
• Funding lithium and copper mining operations globally, and has a hand in new nickel mines
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 Solar Panels, Energy Storage & Battery

China controls 51% of the global total of chemical lithium, 62% of chemical cobalt and 100% of spherical
graphite — the major components of lithium-ion batteries
Even US is at risk of missing its renewable and EV targets unless they can secure lithium deposits
Over 80% of solar equipment used in India is imported from China
Criticality arises from domestic battery storage market expected to grow from 50GWh (USD 2 billion) to
230GWh (USD 14 billion) in 10 years
Besides being expensive to manufacture panels as well as batteries, securing the resources is extremely
critical for move towards a sustainable future
Any move to decentralize production away from China will need not only to build factories to build lithium ion
batteries that can compete in price but need alternate bases of production of chemicals and other minerals

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Research & Development
 Research & Development

India, while positioning itself as a Startup friendly economy (globally 5th most friendly), in terms of Global
Innovation Index 2019 stood at 52nd position out of 129 countries for capacity and success of innovation
India’s expenditure on R&D continues to be as low as 0.6% - 0.7% of GDP, significantly behind South Korea
(4.3%), Israel (4.2%), Japan (3.4%), Germany (3%), USA (2.8%), France (2.2%), UK (17%) and Canada (1.6%)
• India’s spending is lower than the BRIC nations – China (2.1%), Brazil (1.3%), Russia (above 1%)
Government is mainly driving the R&D, unlike advanced countries where private sector is the dominant force
Need for greater participation of State Governments and Private Sector
• Expenditure on R&D by private companies has declined to 0.54% of net sales in 2019 (for 98 firms in S&P BSE 500
companies)
Public sector spend is mostly in Defence & Fuel, and Private Sector in Pharmaceuticals & Transport
Government intends to increase funding allocation to scientific department, and in new areas of clean energy
& water, smart grids, biomethanol, desalination, cyber systems, super computing mission

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Coal Cess & National Clean Energy & Environment Fund
 Coal Cess & National Clean Energy & Environment Fund
Coal Cess originally formulated to incentivize research & innovation in clean energy has failed in practice
Set up in 2010 to combat climate change, support renewable & alternate energy initiatives and infrastructure,
environmental management in environment surrounding energy sector projects
Fund was originally levying Rs.50/ton of coal, has now increased to Rs 400/ton of coal
Total Rs 84000 Cr was collected between FY11 & FY18, but only Rs 29,645Cr was transferred to NCEEF and the
amount spend on projects out of this was only Rs 15,911 Cr or about 18% of collected
• By end 2019, Government has possibly collected Rs 1 lakh Crore
Only 7 states (Odissa, Chattishgarh, Jharkhand, MP, Telangana, Maharashtra, West Bengal) contributed to
97% collection
Fund was largely allocated towards balancing fiscal deficit
The Fund defeated the purpose
• Govt proclaimed that the Fund from coal cess shall support nuclear power, urban devpt under Smart City Mission, solid
waste management, national river conservation, etc
• Rs. 2250 cr in FY17 was sanctioned to Namame Ganga Plan in addition to Rs 1000 cr sanctioned to Ministry of Water
Resources for River Development & Rejuvenation, Rs 400 cr for Tiger project

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 Coal Cess & National Clean Energy & Environment Fund
This fund doesn’t go towards cleaning rivers affected by coal mining or health of people affected by mining
People affected by coal mines, from which cess is collected from produce, have no say in the Use of the Fund
While utilisation of the fund may have increased, but usage should have been meaningfully defined having
relation to coal impact and renewable energy
Similarly, District Mineral Foundation Fund utilization is not towards health, education, nutrition of children
and access to clean drinking water for the affected people, but towards building roads and bridges
In 2017, with the introduction of GST, the Clean Energy Cess was abolished by the Taxation Laws Amendment
Act – A new Cess on Coal Production called the GST Compensation Cess has been put in place at the same
rate Rs 400/tonne
The Compensation Cess is aimed at filling the budget deficit that Indian States would face
This is misutilization and discrimination, as not only coal cess is not appropriately used in states already
reeling under Resource Curse as well as R&D, but even Renewable Energy Projects often do not come under
the ambit of environmental clearances

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Municipal Solid Waste to Energy
 Municipal Solid Waste (MSW) to Energy

In India, with rapid urbanization – over 377 million people live in urban areas (comprising 7935 towns and
cities) generate about 62 million tonnes of municipal solid waste per annum
• Only 43 MT of waste is collected, 11.9MT is treated and 31 MT is dumped in landfill sites
MNRE is implementing Program on Energy from Urban, Industrial and Agricultural Waste Residues
• Present potential is about 5600MW, almost entire requirement of Delhi
• Around 92 plants with aggregate capacity of around 250 MW have been set up in the country for electricity generation
from urban, agricultural and industrial waste
• On an average, 100 tonnes per day of municipal solid waste (MSW) is required to generate 1 MW of power
Many Waste to Energy Projects are being implemented in the country (though not enough to address the
massively growing waste) using different technologies but several challenges remain critical
• Composition of the waste
• Segregation and transportation of waste
• Cost of the Energy/Electricity from Waste is extremely high (despite about 40% total subsidy/incentives)
• No special regulatory treatment as peaking plant
• Environmental concerns for lack of space in densely populated areas, and toxic air pollution from incineration
• Effective waste management is expensive, often comprising 20 per cent to 50 per cent of municipal budgets
• ULBs not willing to forego their royalty on waste
• Choice of technology critical

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Energy Efficiency & Jevon’s Paradox
 Energy Efficiency & Jevons Paradox
Energy efficiency is reduction in the quantity of energy used per unit of service provided & Energy efficiency
reduces energy expenditure and curbs per unit cost of energy-use
Willian Stanley Jevons (1865) questioned justification for enhancement in efficiency of energy use with respect
to energy conservation – Jevon’s Paradox that technological efficiency may not result in reduced consumption
Direct Effects
• Substitution effect - as efficiency increases the per unit cost of energy resource falls relative to its alternative resource,
thereby triggering a rise in consumption of the resource
• Income effect – the fall in per unit price of the resource would result in increase in real income, thereby enhancing the
the budget schedule and encouraging rise in use of both the resource and its alternative
Indirect Rebound Effect
• Improvement in efficiency in the use of a particular resource leads to a greater consumption of another resource due to
an indirect income effect taking place
Due to the above two instances, the energy saving due to efficiency improvements may be outweighed by
total rise in energy consumption defeating the ultimate objective if energy consumption
Another common observation of the Paradox is in the area of Using Efficient Irrigation Technology to
conserve use of ground water, but yielding higher consumption of water
• Farmers behaviour causing a shift to more water intensive but higher revenue crops, and/or expanding the irrigated
agriculture to hitherto unirrigated land
• Marginal & small farmers buy water from large farmers (owning pumps), in an unregulated but well performing market
at Rs.40/hr for electric pumps & Rs.90/hr for diesel pumps; often hits Rs. 120/hr during peak periods

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Some Other Challenges
 Other Challenges to a Circular Economy - Illustrative

Managing huge quantum of Fly Ash from Thermal Power Plants

• Countrywide unused ash stock from thermal plants over the past 10 years is more than 3 times current ash generation of
200 million tonnes (according toa study by CSE)
• Cluster of power plants in a small area results in high consumption of coal and abundance of fly ash putting pressure on
ash dykes
• Penalties for mismanagement of fly ash is often not effective
• Environmental damage costs of Ash Dyke breach is extremely high
• Reduced incidents of fly ash breach and enhanced adoption of flyash based products are critical steps to be taken at
plant level and by regulatory bodies
Policies may have co-benefits or adverse impact on other sectors
Linkages – Irrigation-Energy, Energy & Water Market Linkages, Generation-Water Requirements
• Subsidised energy for agriculture resulting in water overdrawal & crisis
• Marginal & small farmers buy water from large farmers (owning pumps), in an unregulated but well performing market
at Rs.40/hr for electric pumps & Rs.90/hr for diesel pumps; often hits Rs. 120/hr during peak periods
• Minimum Support Price acting as the binding constraint
Rapid addition to MW-size Solar plants may impose water burden considering 1MW solar plant requires 7000-
20000 ltrs/week of water to clean solar panels; could be higher depending on the geographical location (dusty
environment) – A serious water sustainability & efficiency issue
• Most new solar plants are likely to come up in water stressed areas – AP, Telangana, Guj, Rajasthan
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Thank You!