Over the last decade, the Indian energy sector has carefully navigated the throes of climate change concerns and the contentious issue of political economy imperatives while not losing sight of the need to cater to the energy demand required to become a developed country by 2047.
Going forward, this gradient is expected to get steeper, given the overall magnitude of the transition challenge. This is evident from the fact that we are substantially reliant on coal and oil that account for 53% and 20%, respectively, of commercial primary energy consumed by the country.
The multitude of objectives, hence, brings forth the need for an integrated planning approach at an unprecedented level. For example, the recent power shortages that have been partly precipitated by an imbalanced growth in renewables capacity over the last decade reflect the need for better resource planning, both at the Centre and state-level.
To improve supply adequacy, diversity metrics can be used while formulating policies. The country’s energy basket requires a larger presence of renewable, gas, hydro and nuclear-based capacities. Currently, they stand at modest levels at 25% of the total generation. This approach can be applied to feedstock supplies as well. For example, naphtha and petcoke used in the petrochemical and iron and steel industry account for a significant 5% and 8.5% of the country’s oil basket, respectively.
Hence, a key aspect of the climate imperative narrative in the country’s approach to fuel/ feedstock switching, is of stepping down on coal and oil, and stepping up on low carbon fuels like natural gas, carbon free sources like hydel, solar and nuclear.
Let us now look at the approach to two key fuel sources—coal and gas.
Coal: The challenge in weaning away from coal for power generation (accounts for 75% generation, 50% carbon emission) lies in developing round-the-clock (RTC) alternate supplies at affordable prices. While solar tariffs are competitive, for the short to medium term, the complementing low-carbon capacities for RTC supplies are currently expensive (battery), or risk laden (hydel resources). The supply security in meeting the rising demand is equally important. For example, owing to water bodies going dry, Canada, which was dependent largely on its vast hydel resources, is now buying fossil fuel-fired electricity from across the border.
The challenge on the demand side is equally of a tall order: it is fraught with the political predicament of raising electricity tariffs to align with supply costs.
This calls for a larger policy framework involving electricity sector reforms to reduce appetite for coal. To improve fuel diversity in an ‘organic’ manner, the risk models used by lenders to appraise projects are currently biased towards coal projects, needs to be reviewed. For example, according to a study, in Europe, the loan loss-provisioning for low carbon sectors is twice that for big emitters.
This approach will also facilitate faster adoption of newer technologies to reduce emissions in hard-to-abate sectors like cement and steel that use coal or the petrochemical sector which uses naphtha as a feedstock.
Natural gas: As a developing country on its journey to Viksit Bharat by 2047, ‘Just’ transition is an important aspect of government policy, one that enables reasonable pricing and availability of mass consumption products. Natural gas eminently fulfils this role. In the case of the transport sector, which contributes 12% of the country’s carbon emissions, CNG and LNG offer a ‘soft landing’ since currently, green hydrogen is expensive, while EVs suffer from lack of adequate charging infrastructure.
In the agriculture sector, nitrogen is the most consumed nutrient. No doubt, its production largely relies on the use of natural gas. However, a shift to a cleaner option, namely green ammonia, is expensive. In the case of cooking gas, piped natural gas is a cheaper option than the dominant supply of LPG (without subsidy) in the country.
These are some of the reasons why the government is committed to increasing the use of natural gas from the current primary energy levels of 7% to 15% by 2030. The challenges in this pursuit are significant and require policy interventions at various levels. In the case of city gas distribution (CGD), a key hurdle lies at the municipal level, where the cost of access to lay pipeline is exorbitant thanks to municipal levies. Secondly, to improve the viability of gas vis a vis coal in electricity, regulatory reforms are required to bring forth the real cost of electricity that consumers ought to pay. For example, the coal supplies to power do not reflect the cost of environmental rehabilitation and repurposing of ‘End-of-Life’ mines and are sold at prices fixed in 2018.
Central to the Viksit Bharat narrative is the imperative to meet the energy demand that is expected to rise significantly, since India’s per capita energy is currently at a third of the world average. With the rising need for climate action and the limitations posed by the fastest growing Renewables sources, that of supplies dependent on the sun shining and the wind blowing, nuclear power offers immense potential. This needs to be harnessed, from both ‘base load’ supply security as well as competitiveness perspectives.
India’s global engagement on carbon, especially at the United Nations-led COP conferences, has ensured that the principle of Common But Differentiated Responsibilities and Respective Capabilities (CBDR-RC) has prevailed. Thus, our low-emission strategies must provide for a differential approach to our energy mix through policy incentives in keeping with our social-economic obligations. As much as that, policies must evolve to recognise the various aspects of technology and its ability to disrupt. For example, repurposing coal to produce petrochemicals or the declining cost of scrubbing carbon from the air.
In short, the challenges are evolving, and opportunities even more so. These need to be seized to implement the country’s priorities through an integrated energy policy.
One approach to formulating such a policy, a dynamic one, would be through the outreach and synthesis efforts of an institution like NITI Aayog. This would address the gamut of climate issues such as calibration of fossil vis-a-vis clean fuels from a taxation standpoint, pricing of mass consumption products, the development of carbon markets, addressing ‘Just’ transition imperatives, etc. This will also efficiently facilitate medium-to-long term energy transition wherein stakeholders are able to smoothly play their part in a synergistic manner with measurable outcomes in every sector.
Anil Kumar Jain is chairman, Petroleum and Natural Gas Regulatory Board.
