(Study Material for IPS LCE) National Security: India’s Strategy Toward Energy Development and Energy Security - R.V. Shahi

By:  —Mr. R.V. Shahi
Courtesy: Ministry of Home Affairs

Energy is the prime mover of economic growth. Availability of energy with required quality of supply is not only key to sustainable development, but also the commercial energy has a direct impact and influence on the quality of service in the fields of education, health and, in fact, even food security. Inadequacy of energy supply would obviously affect very adversely these vital and essential requirements of any society. There is, therefore, an urgent need to enhance substantially the energy availability at a rapid pace so that aspirations of those who have remained insulated from such important inputs and services are fulfilled and they are enabled to have a reasonable access.

There is a big divide between the developed and the developing countries in per capita availability of energy. The developed countries not only have a significantly higher per capita energy consumption but also mainly depend on commercial energy. On the other hand, developing countries are highly energy deficient and also the large proportion of energy consumed is comprised of non-commercial energy sources such as bio-mass. As per the projections made by International Energy Agency (IEA), most of the developing countries are not expected to reach, even by the year 2030, the level of Energy Development Index achieved by the OECD countries way back in 1971. There is an urgent need to revisit the prevailing world energy order and to initiate necessary steps and to restructure and augment investments and technology transfer strategies to expand the reach of commercial energy to all the countries as per their developmental needs.

With consumption of 530 kg of oil equivalent per person of primary energy in the year 2004 compared to 1240 kg of oil equivalent per person in China and the world average of 1770 kg of oil equivalent per person, India’s per capita consumption of energy has been quite low, despite the fact that India is the sixth largest electricity market in terms of power generation. Per capita electricity consumption in India is only 615 Kwhr per year as compared to world average of 2516 Kwhr and 1585 Kwhr in China.

On 9th December, 2006, while speaking to the Chief Ministers of all the States in the meeting of the National Development Council, the Prime Minister of India outlined the approach to the Eleventh Five Year Plan (year 2007-12) and said “The GDP growth target proposed in the Approach Paper involves accelerating growth rate from 8% likely to be achieved in the base year (2007-08) to 10% in the final year (2011-12) of the Plan, yielding an average of 9% growth in the XI Plan period. This is ambitious but feasible. Growth has averaged 8 per cent over the past three years and is likely to be at this level again this year. This has never happened in the past. If we achieve the target of 9% growth in the 11th Plan, India will be firmly placed in the front ranks of fast growing economies. Most observers believe that we are at a historic cusp when this transition is possible”. To deliver a sustained growth rate of 8% to 9% through next 25 years till 2031-32 and to meet the life line energy needs of all citizens, India needs, at the very least, to increase its primary energy supply by 3 to 4 times and its Electricity generation capacity by about 6 times.

Thus, if we take a conservative view, India’s commercial energy supply would need to grow at the rate of 6% per annum while its total primary energy supply would need to grow at 5% annually. This is based on the assumption that elasticity of GDP in relation to supply of energy would be less than 1. However, this assumption may not be true entirely as, over a period of time, when economy grows, industrial sector is bound to increase at a faster pace and thus with the change in sectoral composition, demand of electricity would grow at much faster rate than projected above. Increase in the reach of the electricity has its own dynamism and would certainly act as catalyst towards more demand of electricity with growing consumerism in the country. Therefore, the correlation between electricity growth and GDP will tend toward 1:1. As noted economist Samuelson has said that choices create its own preferences. This is true in the context of Indian energy sector as well. We believe that availability of electricity creates demand for electricity. To meet the growing demand, there is a difference of opinion among the experts about supply options and market structure. One school of thought advocates that a competitive market is the most efficient way to realize optimal fuel and technology choices for extraction, conversion, transportation, distribution, supply and end use of energy. This approach believes that an energy market being managed on competitive principles is bound to minimize market distortions and maximize efficiency gains. However, there is another school of thought which questions the wisdom of assuming automatic efficiency gains in utter disregard to the prevailing market conditions and absence of a matured market with sufficient number of players in the supply chain and highly skewed demand – supply mis-match. Nobel Laureate Amratya Sen forcefully argues, “Market mania involves an under-examined faith in the efficiency and other virtues of the market, regardless of the context.”

Primarily there is no disagreement with the fundamentals of market approach. The problem arises when an ideal goal is projected without a skillfully structured road map to reach the goal. Management of transition to a matured market is what needs to be appreciated. In absence of tangible number of market players, particularly in supply chain, our fear is not misplaced in assuming that in case we have two or three big players in mind when we talk of competition, then strong cartels is always a possibility with a sole aim of sharing the supernormal profits. In such a situation assumption of passing of efficiency gains to consumers may not hold good.

8. The Committee set up by the Government of India has recently come out with the Integrated Energy Policy, which aims to bridge the prevailing gap in the demand and supply of energy in short, medium and long term perspective. Recognizing the role of both private and public sector participation in meeting the energy needs of the country, the policy strikes a right balance by stating that “wherever possible energy market should be competitive. However, competition alone has been shown to have its limitation in a number of areas of the energy sector and independent regulation becomes even more critical in such instances”.

The approach of Integrated Energy Policy is summarized below :-

• Till market matures in independent regulation across the energy streams is a necessity.

• Pricing and resource allocation to be determined by market forces under an effective and credible regulatory oversight.

• Transparent and targeted subsidies.

• Improved efficiencies across the energy chain.

• Policies that reflect externalities of energy consumption.

• Incentives / disincentives to regulate market and consumer behaviour.

• Management reforms to foster accountability and incentives for efficiency.

The broad vision behind the Energy Policy is to reliably meet the demand for energy services of all sectors at competitive prices. Further, lifeline energy needs of all households must be met even if that entails directed subsidies to vulnerable households. The demand must be met through safe, clean and convenient forms of energy at the least-cost in a technically efficient, economically viable and environmentally sustainable manner. Considering the shocks and disruptions that can be reasonably expected, assured supply of such energy and technologies at all times is essential to providing energy security for all. Meeting this vision requires that India pursues all available fuel options and forms of energy, both conventional and non-conventional. Further, India must seek to expand its energy resource base and seek new and emerging energy sources. Finally, and most importantly, India must pursue technologies that maximize energy efficiency, demand side management and conservation. Coal shall remain India’s most important energy source till 2031-32 and possibly beyond. Thus, India must seek clean coal combustion technologies and, given the growing demand for coal, also pursue new coal extraction technologies such as in-situ gasification to tap its vast coal reserves that are difficult to extract economically using conventional technologies.

Key Recommendations of the Policy are summarised below: The Report of the Committee is under examination of the Government.
Ensuring Adequate Supply of Coal with Consistent Quality: Coal accounts for over 50% of India’s commercial energy consumption and about 78% of domestic coal production is dedicated to power generation. This dominance of coal in India’s energy mix is not likely to change till 2031-32. Keeping in view the competitiveness of coal based power generation through imported coal at coastal areas, power projects at coastal locations to be encouraged.

Ensuring Availability of Gas for Power Generation: There is a total generation capacity of 12,604 MW based on gas and liquid fuels. Bulk of it is base loaded under combined cycle operation. However, gas supplies have been restricted and the overall utilization remains at only 54.5%. While requiring that no new gas capacity be built without firm and bankable gas supply agreements, effort should be made to allocate available domestic gas supplies to the fertilizer, petrochemicals, transport and power sectors at prices that are regulated to yield a fair return to domestic gas producers. Such a practice should be enforced till a better demand-supply balance emerges and domestic gas production achieves some of the potential that is often cited. A more competitive market can then function.

Power Sector Reforms: These must focus on controlling the aggregate technical and commercial losses of the state transmission and distribution utilities. This is essential to creating a financially robust power sector in each state. Only financially healthy state power distribution utilities can provide the needed comfort on payment security to attract private investment in the power sector at internationally competitive tariffs. Our recommendations:

• Control of huge technical and commercial losses in distribution.

• Liberal captive and group captive regime foreseen under the Electricity Act 2003 be realized on the ground.

• To achieve these objectives, it is essential to separate the cost of the pure wires business (carriage) from the energy business (content) in both transmission and distribution at different voltages.

• Open access provisions of Electricity Act, 2003 to be implemented.

• A robust and efficient inter-state and intra-state transmission system with adequate surplus capacity that is capable of transferring power from surplus regions to deficit regions is a must for ensuring optimal operation of the system.

• Rehabilitation of existing thermal stations could raise capacity at least-cost in the short-run.

Reduction in Cost of Power: In terms of purchasing power parity, power tariffs in India for industry, commerce and large households are among the highest in the world. It is important to reduce the cost of power to increase both the competitiveness of the Indian economy and also to increase consumer welfare.

• The Government Policy should ensure that generation and transmission projects should be competitively built on the basis of tariff-based bidding. Public Sector Undertakings shall also be encouraged to participate in such bids even though the tariff policy allows them a 5 year window wherein projects undertaken by the public sector need not be bid competitively.

• Regulators should set multi-year tariffs and differentiate them by time of day.

• Develop market-based instruments that effectively extend the tenure of debt available to power projects to, perhaps, 20 years. This will reduce the capacity charge in the earlier years and spread it more evenly over the life of the project.

• Unit sizes should be standardised and global tenders invited for a number of units to get substantial bulk discount.

• Distribution should be bid out on the basis of a distribution margin or paid for by a regulated distribution charge determined on a cost plus basis including a profit mark up similar to that paid for generation as suggested above.

Rationalization of Fuel Prices: Relative prices play the most important role in choice of technology, fuel and energy form. They are thus the most vital aspect of an Integrated Energy Policy that promotes efficient fuel choices and facilitates appropriate substitution.

Energy Efficiency and Demand Side Management: Lowering the energy intensity of GDP growth through higher energy efficiency is important for meeting India’s energy challenge and ensuring its energy security. The energy intensity of India’s growth has been falling and is about half of what it used to be in the early seventies. Currently, we consume 0.16 kg of oil equivalent (kgoe) per dollar of GDP expressed in purchasing power parity terms. India’s energy intensity is lower than the 0.23 kgoe of China, 0.22 kgoe of the US and a World average of 0.21 kgoe. India’s energy intensity is even marginally lower than that of Germany & OECD at 0.17 kgoe. However, Denmark at 0.13 kgoe, UK at 0.14 kgoe and Brazil & Japan at 0.15 kgoe are ahead of India. These figures and many sectoral studies confirm that there is room to improve and energy intensity can be brought down significantly in India with current commercially available technologies.

• Lowering energy intensity through higher efficiency is equivalent to creating a virtual source of untapped domestic energy and aggressive pursuit of energy efficiency and conservation, it is possible to reduce India’s energy intensity by up to 25% from current levels.

• Efficiency can be increased in energy extraction, conversion, transportation, as well as in consumption. It must

• Enforce truthful labelling on equipment, and impose major financial penalties if the equipment fails to deliver stated efficiencies. In extreme cases, resort to black listing of errant suppliers on consumer information web sites and in government procurement.

• Establish benchmarks of energy consumption for all energy intensive sectors.

• Disseminate information, support training and reward best practices with national level honours in energy efficiency and energy conservation.

• Require a least-cost planning approach to provide a level playing field, to Negawatts and Megawatts so that regulators permit the same return on the investment needed to save a watt as to supply an additional watt.

• Promote minimum life cycle cost purchase instead of minimum initial cost procurement by the government and the public sector.

Augmenting of Resources for Increased Energy Security: India’s energy resources can be augmented by exploration to find more coal, oil and gas, or by recovering a higher percentage of the in-place reserves. Developing the thorium cycle for nuclear power and exploiting non-conventional energy, especially solar power, offer possibilities for India’s energy independence beyond 2050.

• India’s extractable coal resources could be augmented through in-situ coal gasification which makes use of those coal deposits which are at greater depth and cannot be extracted economically by conventional methods.

• Extracting coal bed methane before and during mining could augment the country’s energy resources.

• Enhanced oil recovery and incremental oil recovery technologies could improve the proportion of in-place reserves that could be economically recovered from abandoned/depleted fields.

• Isolated deposits of all hydro carbons including coal may be tapped economically through sub leases to the private sector.

Using Energy Abroad: In case India can access cheap natural gas overseas under long-term (25-30 years) arrangements, it should consider setting up captive fertiliser and/or gas liquefaction facilities in such countries. This would essentially augment energy availability for India.

Role of Nuclear and Hydro Power: Full realization of Hydro potential of the country by 2032. India has a potential of 1,50,000 MW capacity. The exploitation has been only to the extent of about 20%.

Nuclear energy theoretically offers India the most potent means to long-term energy security. India has to succeed in realising the three-stage development process described in the main report and thereby tap its vast thorium resource to become truly energy independent beyond 2050. Continuing support to the three-stage development of India’s nuclear potential is essential.

Role of Renewables: From a longer-term perspective and keeping in mind the need to maximally develop domestic supply options as well as the need to diversify energy sources, renewables remain important to India’s energy sector. It would not be out of place to mention that solar power could be an important player in India attaining energy independence in the long run. With a concerted push and a 40-fold increase in their contribution to primary energy, renewables may account for only 5 to 6% of India’s energy mix by 2031-32. While this figure appears small, the distributed nature of renewables can provide many socio-economic benefits.
Ensuring Energy Security: India’s energy security, at its broadest level, is primarily about ensuring the continuous availability of commercial energy at competitive prices to support its economic growth and meet the lifeline energy needs of its households with safe, clean and convenient forms of energy even if that entails directed subsidies. Reducing energy requirements and increasing efficiency are two very important measures to increase energy security. However, it is also necessary to recognise that India’s growing dependence on energy imports exposes its energy needs to external price shocks. Hence, domestic energy resources must be expanded. For India it is not a question of choosing among alternate domestic energy resources but exploiting all available domestic energy resources to the maximum as long as they are competitive.

Ensuring energy security requires dealing with various risks. The threat to energy security arises not just from supply risks and the uncertainty of availability of imported energy, but also from possible disruptions or shortfalls in domestic production. Supply risks from domestic sources, such as from a strike in CIL or the Railways, also need to be addressed. Even if there is no disruption of supply, there can be the market risk of a sudden increase in energy price. Even when the country has adequate energy resources, technical failures may disrupt the supply of energy to some people. Generators could fail, transmission lines may trip or oil pipelines may spring a leak. One needs to provide security against such technical risks. Risks can be reduced by lowering the requirement of energy by increasing efficiency in production and use; by substituting imported fuels with domestic fuels; by diversifying fuel choices (gas, ethanol, orimulsion tar sands etc.) and supply sources; and by expanding the domestic energy resource base. Risks can also be dealt with by increasing the ability to withstand supply shocks through creation of strategic reserves, the ability to import energy and face market risk by building hard currency reserves and by providing redundancy to address technical risks. Following has been recommended:

Maintain a reserve, equivalent to 90 days of oil imports for strategic-cum-buffer stock purposes and/or buy options for emergency supplies from neighbouring large storages such as those available in Singapore.

Since 80 percent of global hydrocarbon reserves are controlled by national oil companies controlled by respective governments, oil diplomacy establishing bilateral economic, social and cultural ties can reduce supply risk.
Boosting Energy Related R&D: Demonstrations of new technologies, their economic assessment and further R&D to make the new technology acceptable and attractive to customers could follow, before finally leading to commercialisation and diffusion. Some key policy initiatives relevant to energy related R&D are detailed below:

• A National Energy Fund (NEF) should be set-up to finance energy R&D. Much of R&D can be considered a public good. It is thus better financed by the Government. Initially an allocation of Rs.1000 crores should be made for energy R&D excluding atomic energy.

• A number of technology missions should be mounted for developing near-commercial technologies and rolling out new technologies in a time bound manner. These include coal technologies (where India should focus) for efficiency improvement; in-situ gasification; IGCC and carbon sequestration; solar technologies covering solar- thermal and photovoltaics; bio-fuels such as bio-diesel and ethanol; bio-mass plantation and wood gasification, and community based bio-gas plants.

• The NEF could provide R&D funding in support of applications, innovative new ideas, fundamental research etc. to researchers in different institutions, universities, organisations and even individuals working independently.

•  A number of academic institutions should be developed as centres of excellence in energy research.

Household Energy Security - Electricity and Clean Fuels for All: Electrification of All Households:

• The government has announced its commitment to ensure this by 2009-10.

• Provision of Cooking Energy: We may set a goal to provide clean cooking energy such as LPG, NG, biogas or kerosene to all within 10 years. It may be noted that the requirement of cooking energy does not increase indefinitely with income. Thus the total amount of LPG required to provide cooking energy to 1.5 billion persons is around 55 Mtoe.

• Other Sources: We may provide fuel wood plantations within one kilometre of all habitations. Those who do not have access or cannot afford even subsidised clean fuels, rely on gathering wood. Neighbourhood plantations can ease their burden and the time taken to gather and transport wood.

• To make the rural electrification programme (Rajiv Gandhi Grameen Vidyutikaran Yojana) sustainable, a business plan with a viable revenue model needs to be elaborated. A clear pricing and subsidy policy and the means of targeting the subsidy need to be announced soon. Local bodies, panchayati raj institutions, NGOs or even local entrepreneurs can take the franchise to run the local network. Women’s self-help groups can also be empowered to do so.

• The best way for providing subsidy for electricity and cleaner fuels, kerosene or LPG, is to entitle targeted households to 30 units of electricity per month and LPG, kerosene or bio-gas purchased from a local community size plant equivalent to 6 kg of LPG per month. A system of debit cards may be introduced to deliver such a subsidy. The entitlements can only be used for purchase of these products. With modern ICT, debit card readers operated on battery and feeding data using mobile technology, can work in rural areas of the country as well.

By:  —Mr. R.V. Shahi
Courtesy: Ministry of Home Affairs

The Government of India decided and notified the National Electricity Policy in February, 2005. The policy aims at accelerated development of power sector, providing supply of electricity to all areas and protecting interests of consumers and other stakeholders.

Objectives of the Policy are:

1. Access to Electricity – Available for all households in next five years.

2. Availability of Power – Demand to be fully met by 2012. Energy and peaking shortages to be overcome and spinning reserve to be available.

3. Supply of Reliable and Quality Power of specified standards in an efficient manner and at reasonable rates.

4. Per capita availability of electricity to be increased to over 1000 units by 2012.

5. Minimum lifeline consumption of 1 unit/household/day as a merit good by year 2012.

6. Financial Turnaround and Commercial Viability of Electricity Sector.

7. Protection of consumers’ interests.

The Policy prescribes development of Rural Electrification Distribution backbone, village electrification and household electrification to achieve the target of completing household electrification in next five years, financial support in terms of capital subsidy to States for rural electrification and special preference to Dalit Bastis, Tribal Areas and other weaker sections for rural electrification. REC to be nodal agency for rural electrification at Central Government level.

The Policy emphasizes

1. Creation of adequate generation capacity with a spinning reserve of at least 5% by 2012 with availability of installed capacity at 85%.

2. Full development of hydro potential. Provision of long tenor finance for these projects.

3. Choice of fuel for thermal generation to be based on economics of generation and supply of electricity.

4. Nuclear Power is an established source of energy to meet the base load demand. Share of nuclear power in the overall capacity profile will need to be increased significantly.

5. Development of National Grid.

6. Cost of recovery of service from consumers at tariff reflecting efficient costs to ensure financial viability of the sector.

7. Provision of support to lifeline consumers (households below poverty line having consumption of 30 units per month) in terms of tariffs.

8. Availability based tariff (ABT) to be extended to State level for better grid discipline through economic signaling.

9. Special emphasis on time bound reduction of transmission and distribution losses.

10. Measures to promote competition aimed at consumer benefits.

11. Reliability and quality of power supply to be monitored by State Electricity Regulatory Commissions.

12. Exploitation of non-conventional energy sources such as small hydro, solar, biomass and wind for additional power generation capacity. Required encouragement through suitable promotional measures.

13. Emphasis on achieving higher efficiency levels of generating plants through necessary renovation and modernization.

14. Central Government to facilitate the continued development of national grid. Central Transmission Utility and State Transmission Utility to undertake coordinated planning and development.

15. Transmission capacity to have redundancy level and margins as per international standards.

16. Adequate transitional financial support for reforming power utilities. Encouragement for private sector participation in distribution.

17. The State Regulatory Commissions to put in place independent third party meter testing arrangement.

18. Support for adoption of IT system for ensuring correct billing to consumers.

19. Speedy implementation of stringent measures against theft of electricity.

20. Full emphasis on augmentation of R&D base. Mission approach for identified priorities areas.

21. Demand side management through energy conservation measures. Labels regarding energy efficiency to be displayed on appliances. Efficient agricultural pumpsets and efficient lighting technologies to be promoted. Appropriate tariff structure for managing the peak load.

22. Special attention for developing training infrastructure in the field of regulation, trading and power market.

23. For giving boost to renewable and non-conventional energy sources, a prescribed percentage of power, as specified by State Regulatory Commissions, to be purchased from such sources of energy at the earliest.

24. Necessary regulations and appointing Ombudsman for redressal of consumers’ grievances to be in place in six months.

Electricity Tariff Policy

The Government of India notified the Electricity Tariff Policy in January, 2006. The objectives of the Policy are:

• Ensure availability of electricity to consumers at reasonable and competitive rates;

• Ensure financial viability of the sector and attract investments;

• Promote transparency, consistency and predictability in regulatory approaches across jurisdictions and minimize perceptions of regulatory risks; and

• Promote competition, efficiency in operations and improvement in quality of supply.

All future requirement of power needs to be procured competitively by distribution licensees except in cases of expansion of existing projects or where there is a State controlled / owned company as an identified developer. Even for Public Sector projects, tariff of all new generation and transmission projects needs to be decided on the basis of competitive bidding after a period of five years. It gives the framework for performance based cost of service regulation in respect of aspects common to generation, transmission as well as distribution.

1. Rate of return to be notified by the Central Commission for generation and transmission. The rate of return notified for transmission would be adopted by State Electricity Regulatory Commissions(SERCs) for distribution also with appropriate modification to take care of higher risks involved in the distribution. For uniformity a common approach to be evolved by the Forum of Regulators (FOR) for rate of return in distribution.

2. The depreciation rates for generation and transmission to be notified by the Central Electricity Regulatory Commission(CERC). These rates are to be adopted by SERCs also for distribution with suitable modification as evolved by the FOR.

3. Same rates of depreciation would be applicable both for tariff as well as accounting purposes.

It emphasizes the need of keeping duties like electricity duty at reasonable level for making electricity available at reasonable prices. Multi-year tariff framework to be adopted for tariff to be determined from April 1, 2006. Suitable performance norms of operations with incentives and dis-incentives along with appropriate arrangement for sharing the gains of efficient operations with the consumers. The CERC to notify operating norms for generation and transmission in consultation with the CEA. Operating norms for distribution to be notified by the SERCs based upon uniform approach as evolved by the FOR. It gives essential features of commercial arrangements for harnessing surplus power available from captive generators.

Future requirements of energy from non-conventional sources to be procured as far as possible through competitive bidding process to bring down the costs.
In line with the National Electricity Policy (NEP), National Tariff framework for transmission is to be implemented by April 1, 2006 to ensure sharing of the total transmission cost among the users in proportion to their respective utilization of the system. Private investment in transmission to be invited through competitive process for making transmission asset available according to laid down operational norms. Insistence on making electricity available for 24 hours particularly for those consumers who are willing to pay tariff which reflects efficient costs in accordance with the NEP. Emphasis on giving subsidy in transparent and targeted manner. Cross subsidies for different consumers to be brought within the range of + 20% of average of the supply by the end of the year 2010-2011. Tariff fixation to ensure sustainable use of ground water resources. At the same time there is a stipulation for supporting poor category consumers. The cross subsidy surcharge to be computed in a way so that open access becomes a reality. The policy gives unambiguous methodology.

Recent Reforms in the Coal Sector

In India, the annual coal production is about 400 million tonnes as in the year 2006-07. More than 90% of coal production is non-coking coal. In the non-coking category, more than 80% of coal is consumed by the Indian Power Sector. Dependence of Indian Power Sector on imported coal is rather marginal – about 11 million tonnes in 2005-06 and the likely import during 2006-07 may be about 16 million tonnes. Coal production has been primarily in the hands of the Central Government owned coal companies. Recently, it has been decided to allot a number of coal blocks to power plant producers for the purpose of captive coal mining. Coal blocks have been allotted and are being allotted to generating companies under the Central Government, State Governments generating companies and also to private sector. Almost 20 billion tonnes of coal reserves have been identified by the Ministry of Coal to be allocated to various power producing companies. This initiative would have far-reaching positive impact in transforming the present structure of the Indian coal industry and market. This development also has the potential of bringing new technologies, establishing performance benchmarks, improving productivity not only in the coal mines allotted to power producers, but also among the Government owned coal companies. Their performance level has already started showing significant improvement.
Merchant Power Plants
In order to introduce and increase the extent of competition in the electricity market, Ministry of Power, Government of India has recently announced a scheme of Merchant Power plants.
1. For quite some time a need has been felt for setting up of Merchant Power Plants to facilitate development of electricity market. Unlike traditional utilities, Merchant Power Plants compete for customers and absorb the full market risk. There are no guarantees that they will have a minimum off-take of their output. They must respond to market needs. Typically the risk of a Merchant Power Plant is carried on the balance sheet of the promoter. Merchant Power Plants can provide the additional generating reserves that India needs now and will need in the future. They are a modern, market-based answer – at least in part – to energy challenges faced by the country.
2. Merchant Power Plants are a product of the restructuring of the electricity industry. In the past, utilities owned their own generating facilities or contracted with an independent power producers (IPP) to buy electrical output on a long-term basis. Merchant Power Plants fill different niches in the market; some provide steady supplies to a power grid, while others fire up only when demand is highest and meet peak loads. Merchant power plants operating competitively help assure that power is produced with efficiency and supplied to locations where it is needed most.
3. Considering the redundancies that are being provided in the grid to promote open access in transmission and open access in distribution in coming years, it would be reasonable to expect that merchant power plants each of capacities of 1,000 MW and below could be accommodated for being able to access transmission availability for wheeling of power to customers which are generally not pre-determined. By the year 2012, it is expected that inter-regional transmission capacity in the National Grid would rise to about 37,000 MW. Besides, intra-transmission capacities are also being augmented with required redundancies to take care of such short-term needs of transmission of power across the country from one region to another and within the region. Merchant Power Plants would be expected to have dedicated lines upto the nearest regional/national grid system.
4. Merchant Power Plants would be provided coal linkage for capacity of any of the plant upto 1,000 MW. Merchant Power Plants may be provided coal blocks also as captive mines for capacity of any of this plant in the range of 500 – 1000 MW.

Rural Electrification Policy

The Government of India notified a comprehensive Rural Electrification Policy in August, 2006. The Policy aims at –

• Provision of access to electricity to all households by year 2009;

• Quality and reliable power supply at reasonable rates;

• Minimum lifeline consumption of 1 unit per household per day as a merit good by year 2012.

It is relevant to mention that 56% of rural households, according to Census 2001, do not have access to electricity and the number of such households is as high as 78 millions. The balance 44% of households, which have access, because of inadequacy of power, have to suffer power supply disruption of as many as 10-16 hours a day. For Indian Power Sector, therefore, access to electricity for rural India has acquired top-most priority.

The salient features of the Policy are given below:-

• Grid connectivity is the normal way of electrification of villages. For villages/ habitations where grid connectivity is not feasible or not cost effective, off-grid solutions based on standalone systems are envisaged.

• State Governments are required to prepare and notify rural electrification plans within six months which will indicate the electrification delivery mechanisms so as to provide access to electricity to all households and electrification of all villages and hamlets.

• Ministry of Power will put in place a coordination mechanism for identifying villages to be covered in different schemes.

• District Committees are to be set up to ensure involvement of local community in rural electrification. Adequate representation of women in these Committees is to be ensured.

• Least cost option is to be adopted for rural electrification after taking into account full life cycle cost and explicit as well as implicit subsidies.

• Emphasis has been given on development of economic load to make the business of rural supply economically viable.

• RGGVY already mandates franchisee for the projects financed under the scheme. System of franchisees is to be introduced in other areas not covered under RGGVY also in phased manner to ensure revenue sustainability of the rural supply.

• Benefit of capital subsidy given to the rural electrification projects is to be fully passed on to the consumers.

• Annuity based approach has to be adopted for provision of capital subsidy to the decentralized generation system in order to ensure efficient operation and maintenance.

• Programmes for encouraging energy efficient equipments specially irrigation pump sets have to be taken up.

• The definition of rural area as laid down in Article 243 of the Constitution is being adopted for the purpose of the Electricity Act also.

• The tariff for sale of electricity by the standalone systems is to be decided by the competitive market forces. However, the benefit of financial assistance/ capital subsidy received from the Government is to be fully passed on to the consumers according to the guidelines made by the Appropriate Commission. The Appropriate Electricity Regulatory Commission shall have right to intervene in case these guidelines are not implemented.

• There is special enabling dispensation for encouraging standalone systems of upto one MW which are based on cost-effective proven technologies and use locally available resources.

• Policy gives essential features of the franchisee arrangement for local management of rural distribution.

• As far as possible the franchisee is to be selected on the basis of competitive bidding.

• The franchisee is required to ensure compliance with safety regulations and also to ensure delivery of services to the consumer as per laid down benchmarks.

India’s Response Toward Climate Change Related Issues

It has been recognized internationally that development and poverty reduction are urgent and overriding goals. We, in India, have planned, as mentioned earlier, to increase our energy production capacities so as to meet the projected demand in order to realize our development potential. Rapid expansion of generation capacity would, obviously, have environmental ramifications. India is fully alive to the needs relating to Climate Change issues and is trying to address various concerns so as to minimise the adverse impact. Broadly, the approach and the response toward climate change is outlined below:-

Our energy needs in future are going to grow rapidly. By the year 2012, meeting the demand for electricity will require an installed capacity of more than 2,00,000 MW which is sixty percent more of what we have at present. It is further estimated that by 2032, our requirement will be of the order of 800,000 MW. We require energy in such large quantity as our economic growth is accelerating, coverage of households is targetted to grow rapidly and we also aim to increase per capita consumption of electricity to 1000 units by year 2012.

Obviously, meeting such huge energy needs would call for exploitation of all available energy resources. We have come out with a National Electricity Policy that aims to exploit all possible resources to meet the demands of electricity in an efficient and cost effective manner. The policy gives highest emphasis to development of clean sources of energy like hydro potential. We believe that all hydro electric power projects are sources of renewable energy. We have had difficulty with recent trends in many quarters of narrowing the definition of renewable sources of energy to exclude large hydro electric power projects. Given the challenge of climate change from CO2 emissions it is necessary to generate an international consensus in favour of the full development of the hydro electric power potential of our planet subject to location specific environmental concerns being suitably addressed. In many developing countries the hydro electric power potential provides an immediate commercially viable and attractive alternative to the use of fossil fuels.

We have significant hydro electric power potential in our country and we intend to fully develop it. With our monsoon climate we get all our rainfall in only a few months of the year. We therefore, have an imperative need for storing water through dams both large and small. We aim at the optimal utilization of our river basins to meet the objectives of flood control, irrigation, drinking water and hydro electric power generation, while taking into account site specific environmental concerns. The rehabilitation and resettlement measures for persons displaced by large projects have now been made sufficiently liberal and attractive.
We are also developing non-conventional sources of energy and endeavour to exploit nuclear energy. Wind has been a big success story in India. On the basis of a positive policy framework and enterprise of our people, India has 3600 MW of installed capacity of wind energy which is probably the fourth largest in the world. Wind based grid connected capacity is growing rapidly. We are making efforts at developing and promoting the number of efficient modern technologies for conversion of biomass into useful energy. There has been considerable technical progress in recent years in this area. This issue is getting greater attention internationally. Biomass is a renewable source of energy and from the perspective of climate change, we need to promote and maximize the use of biomass to the extent feasible for provision of energy.
Solar energy offers enormous potential. There is, however, need for greater investment in R&D to bring down costs. Reduction in costs would be the key to the large scale use of solar energy in developing countries like ours. We believe that cooperative R&D and location of some of the R&D efforts in a low cost country like ours would facilitate the process of reduction in costs of solar energy. We in India being well endowed with access to solar energy are particularly keen on pursuing and promoting joint efforts in the improvement of the technology and lowering of cost of solar energy.
In India we have been pursuing the development of nuclear energy. Nuclear energy provides a modest 3 per cent of our electricity production. India would like to increase the share of nuclear energy in the coming decades. To the extent that we succeed, there would be a corresponding reduction in the use of fossil fuels and consequently of CO2 emission. From the point of view of concerns of use of fossil fuel CO2 emissions and climate change, a fresh look at nuclear energy in the international community would seem to be necessary.
To meet the projected energy demands, which is imperative for our developmental needs, fossil fuels particularly coal is going to be mainstay for generation of electricity in India. India is well endowed with coal reserves which is our main source of energy.

Continued use of fossil fuels for meeting the energy needs has raised concerns about climate change and particularly global warming across the world. We share these concerns. However, it is important to keep the perspective in view. Per capita emission of carbon dioxide are the highest in high income countries. According to the published statistics, carbon dioxide emission per capita in India is around 1 tonne against the world average of about 4 tonnes and of about 19 tonnes in case of some developed countries. Development needs of developing countries have been recognized globally. Such development process will necessitate consumption of higher levels of energy. While discussing the concerns on issues like climate change and global warming, it will not be equitous to put together countries with comparatively low per capita emissions and whose large population are yet to see the fruits of development and respectable standard of living with countries which are already developed and have very high per capita income and still have ever growing energy consumption.

Efforts should be to achieve a unit of human welfare with least possible energy consumption.

Energy efficiency is a necessity for a country with our levels of income and needs of development. India has made significant progress in this direction. Our energy intensity per unit GDP in Purchasing Power Price terms is now the same as the average of the OECD countries at 0.18. We are, however, not complacent and would like to keep improving and achieving the best that is possible in the field of energy efficiency. This is a shared challenge internationally and we all need to work together on creating the technologies as well as markets for improving energy efficiency and the need for energy without compromising economic growth and human welfare.
While talking about the reduction of green house gas emissions, India stands by the UN Framework Convention Treaty on Climate Change and the Kyoto Protocol. This mechanism recognizes the ‘common but differentiated responsibilities’ of the countries in the matter of reduction of green house emissions. The Convention also recognizes that as developing countries grow, their emissions are bound to increase.
Given the fluctuation and volatility in oil prices and concentration of most of the world oil and gas resources in few countries, coal is emerging as one major source of energy worldwide from the angle of energy security. The abundance of coal, its location in large parts of the world makes it a reliable source of energy, both in developed and developing countries. Coal transportation and storage systems are modern and clean. It has been possible to increase the efficiency of coal based electricity generation by using improved technologies. Super critical power generation technology is being adopted in India. Similarly, India is making serious efforts to develop a pilot project of about 120 MW based on IGCC technology. The coal found in India has high ash content in the range of 30-35% and therefore currently available technologies need to be modified and adopted for using this coal.

Though India has not undertaken legally binding comment to reduce greenhouse gas emissions but we are working with international community in research and development of new technologies with the objective of making such technologies technologically sound and economically viable.

India along with other 16 countries of the world joined Carbon Sequestration Leadership Forum (CSLF) in June 2003 and signed the Charter. As Secretary, Ministry of Power, I had the rare privilege of being part of this historic initiative and landmark decision. The CSLF is a relatively new but important climate change initiative that is focussed on development of improved cost-effective technologies for the separation and capture of carbon dioxide for its transport and long-term safe storage. The purpose of the CSLF is to make these technologies broadly available internationally; and to identify and address wider issues relating to carbon capture and storage. The affirmative action on part of India to join Carbon Sequestration Leadership Forum (CSLF) emanates from prudence to be at par and take part in development of cost-effective technology development through R&D collaborations. In India’s energy security coal based energy generation will continue to play a significant role to address the concerns of development and electricity for all. Coal use in sustainable manner is a greater challenge for us. Carbon capture and storage (CCS) from fossil fuel combustion is an emerging technology option in this category. A host of demonstration projects have been launched internationally in research & development (R&D) mode on CO2 sequestration for mitigating global concerns of climate change. Seventeen such projects have been recognized by CSLF. India is partnering in the pilot project on Geological CO2 sequestration in basalt rock formations with USA, the project is recognized by CSLF. Development of CCS technology in Indian context will, however, depend upon this being cost effective.

India has joined ‘Methane to Markets Partnership’ as founder Partner along with Argentina, Australia, Brazil, China, Columbia, Italy, Japan, Mexico, Nigeria, Russia, Ukraine and the U.K. in November 2004. This initiative has been launched by US to serve as a framework for promoting cost effective near term methane recovery internationally through partnerships among developed and developing countries.
India has joined along with Canada, EU countries, Japan, China and South Korea in ‘International Partnership for a Hydrogen Economy (IPHE) in November 2003.
India is also first Asian country to join the US on the Government Steering Committee for the FutureGen initiative. The US and India have signed the Framework Protocol during April 2006 in New Delhi aimed at collaborative funding for the FutureGen Project aiming to design, build and operate first coal-fired emission-free power plant of 275 MW. The project envisages coal conversion technology, combined cycle coal gasification process, CO2 capture and storage. Our participation would provide a unique opportunity of sharing experience and expertise in finding potential technological solutions for historical development of zero emission coal based energy generation. While Department of Science & Technology, National Thermal Power Corporation as members of CSLF Policy and Technical Groups are initiating research in carbon capture and storage along with various other organizations, such projects are often costly and developing countries usually have more pressing needs for their limited resources. Creation of a Fund for CSLF projects is therefore recommended.

India has joined the International Thermonuclear Experimental Reactor (ITER) project as a full partner country in the cooperative international R&D effort at harnessing nuclear fusion. If this effort succeeds and we hope it does, then man kind would be free of the need for fossil fuel.

India has also signed the charter of Asia Pacific Partnership for Clean Development & Climate along with US, Australia, China, Japan and Korea for sharing the existing technologies and best practices which have potential for clean development. India is participating in all eight Task Forces of this Partnership.

Courtesy: Ministry of Home Affairs