India's Energy Challenge

Introduction

India’s energy consumption is growing at an exponential rate. Today, India is the third largest energy consumer in the world, accounting for 4.4% of the world's total energy. Sustained and unprecedented economic growth in the country has placed an uncontrolled demand on the country’s energy resources. While India’s energy basket has a mix of all sources of energy, including renewables, 59% of its energy supply is fueled by coal. This forces India to import large amounts of coal to balance the domestic production deficit. At Hudson Institute’s March 2014 conference, Nitin Zamre identified this increasing stress on domestic resources and the country’s dependency on energy imports. He claimed that the supply and demand imbalance in energy is prevalent across all sources and requires immediate intervention by the Indian Government in light of severe supply constraints in the future.

The Modi Intervention

Acknowledging that the energy sector plays a pivotal role in India’s development, Prime Minister Narendra Modi integrated all power and coal policies under one ministry in order to streamline execution. With a big drop in crude price—oil standards have plummeted more than 50 percent since June 2014—the Modi government has been able to stop subsidizing diesel and raise natural gas prices. Although these reforms will help India’s energy sector in the short term, the long term effects seem bleak. Reducing subsidies may seem rational when prices are plunging, but these global energy price drops are likely temporary. Whether lowering subsidies today will continue to galvanize India’s energy reforms in the future still remains up in the air.

Eradicating the Dependence on Imported Coal

Under the previous UPA-led government, India started importing a significant amount of coal—approximately 77 percent of its energy supply—to compensate for its domestic production deficits. Importing coal at high global prices leads to an increase in power costs as well as other industrial sectors. In May 2014, Energy Minister Piyush Goyal surprised the world by announcing a proposal to cease the importation of thermal coal within the next few years. The government aims for a 10% reduction in energy imports by 2022 and a 50% cut by 2030. The logic behind Goyal’s plan is compelling: imported coal is inflationary, as it does not aid India’s energy-system security. The Financial Times reports that Mr. Goyal’s comprehensive plan includes ramping up the domestic production of coal, especially by the state-backed coal miner, Coal India Limited. A component of this comprehensive plan is the auctioning of coal mines. However, the country has a tarnished history when it comes to the auctioning of coal mines to private companies. In September 2014, 214 coal deposit auctions and leases were cancelled by the Supreme Court upon the discovery that US $33 billion of government owned coal assets had been illegally allocated to select companies for “free.” Mines stopped production and the reduced domestic coal supply drove up energy costs. Nonetheless, in February 2015, the Indian government auctioned, via a tender, coal mine deposits through transparent yet aggressive bidding in the hopes of refueling the dejected domestic coal mining industry. The plan to significantly step up Coal India Limited’s domestic coal productivity is only part of Minister Goyal’s comprehensive plan. The other component involves investing in the installation of India’s sustainable renewable energy capacity.

Investing in Renewable Energy Sources

In an attempt to increase India’s renewable energy sector, Goyal made public plans to secure 100 GW of solar power and 60 GW of wind power by 2022; including US $100 billion of renewable energy infrastructure investment and US $50 billion of grid upgrades. In addition, the Ministry of New and Renewable Energy spearheaded the development of small hydro power projects up to 20,000 MW to harness at least 50% of the country’s hydroelectric potential in the next 10 years. The Institute for Energy Economics & Financial Analysis reported in December 2014 that the government has emphasized the advancement of solar energy through a solar subsidy adjustment of US $800m for solar development schemes and solar power parks. Taking a cue from the electricity industry policy shift a month later, Adani Enterprises publicized a US $4bn investment in construction of an integrated solar panel manufacturing complex in a joint venture with SunEdison Inc. Many foreign investors with advanced technology, such as China’s Trina Solar and Japan’s Softbank, have also invested significantly in India’s solar panel manufacturing. In addition, Goyal is toying with the idea of pushing the National Thermal Power Corporation into exponentially expanding its renewable power generation. Although the government proposed reaching an additional renewable energy generation capacity of 4.46GW by 2015, as of March 2015, only 44 percent of this target has been achieved. This is likely due to the large parcels of land renewable energy power plants require. Foreign Policy reports that approximately 50,000 acres of land is needed for the planned solar power plants, an expanse of land that is often dispersed amongst many people.

The Future of India’s Nuclear Energy

Since coming into power, Prime Minister Modi has strongly emphasized his interest in making nuclear energy a fundamental part of India’s energy basket. India currently possesses 21 operational nuclear power reactors, which account for a nominal 3 percent of the country’s energy generation. Modi pledged to boost the nuclear energy contribution to 25 percent by 2050 as well as triple the country’s nuclear capacity to 17 GW by 2024. There have been a few crucial developments in the nuclear arena during Modi’s first year in office, especially in terms of nuclear agreements with other countries. In January 2015, Modi announced a “breakthrough” pact with the US to kickstart a number of stalled projects, while in April 2015, he was able to secure a supply of 3.2 million kilos of Uranium from Canada in a landmark nuclear deal. Modi is also in talks with France to sign a nuclear manufacturing deal between Areva and the state run Nuclear Power Corporation of India (NPCIL). Nevertheless, Modi’s government has been unable to make critical changes in the country’s nuclear regulatory climate, including in its civil nuclear liability law. The current law is unfavorable for nuclear generation and foreign investment, as evidenced by the failed nuclear agreements with Russia and Japan. According to The Diplomat, the Modi government needs to reform its suffocating regulatory atmosphere if it hopes to increase foreign nuclear investments and nuclear energy productivity in the future.

The Need for Energy Security

In terms of energy security, NITI Aayog, a think tank that replaced India’s Planning Commission, has “proposed a group which is now looking at energy security plans for the next 100 years.” The proposal entails the creation of a central body, the National Energy Commission, to work with all ministries that deal with any matter related to energy to construct a common strategy for energy security. As of July 2015, the National Energy Commission proposal is still pending with the prime minister’s office. 

Challenges and Opportunities

India’s dependence on imported coal and subsequent high energy prices has continued to hurt India’s energy sector. There is a need for diverse and sustainable energy resources, increased investment in domestic resources, and efficient delivery to the consumer. India’s economic future depends on its ability to aggressively expand renewable investment and cut back on energy imports, whilst focusing on energy diversification and the reduction of the current massive account deficit. It is also important for the government to develop bilateral and regional strategic partnerships to enhance innovation and technology in the energy sector. With the strategic implementation of reforms, India can draw upon its untapped energy potential. The drop in global oil prices gives the government the opportunity to cut back on fuel subsidies and increase certain energy prices. In addition, the government has proposed many projects for the advancement of renewable energy sources, especially solar energy. Most significantly, if the proposal is approved, the National Energy Commission can potentially play a big role in protecting India’s energy security.