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Need to Redo the Draft National Energy Policy

Bhamy V Shenoy (bhamysuman@gmail.com) is a Mysore-based consumer activist. He worked formerly for Conoco and was on the board of the National Oil Company of Georgia. He has 50 years’ experience in the energy sector, working in different parts of the world.

NITI Aayog’s Draft National Energy Policy has numerous suggestions to make but has not underlined those of critical importance. In recent years, the cost of solar and wind energy has fallen dramatically. The focus on peak oil supply has been replaced by peak oil demand. The end of the coal era has already begun. DNEP’s energy mix does not reflect these developments. Hence, NITI Aayog should redo its draft energy policy with a well-developed road map.

NITI Aayog’s Draft National Energy Policy (DNEP), which was finally unveiled in June for public comments, has some ambitious objectives, such as universal access to electricity on a 24/7 basis and clean cooking fuel for all, and some excellent recommendations to promote renewables and tackle energy poverty (GoI 2017). Notwithstanding this, it should redo the DNEP for reasons discussed in this article, and not simply tweak it. Otherwise, we would miss a golden opportunity to prepare India for the transition from the fossil fuel era to one of renewables.

The DNEP presents two scenarios, business-as-usual (BAU) and Ambitious. According to the DNEP, renewables and clean energy will meet only 8.9% of commercial energy needs in the BAU scenario in 2040 and 13.4% under the Ambitious scenario (Table 1). Annual energy growth rates for these two cases are between 3.4% and 4.2%.

Niti Aayog’s DNEP has assumed that India’s gross domestic product (GDP) growth will be 8% per year during the plan period with an energy growth/GDP growth coefficient of 0.43 to 0.53. It would be remarkable if we can achieve such a high GDP growth rate with a relatively low energy growth as projected by DNEP. The energy/GDP coefficient for developed and some developing countries was close to 1.00 or sometimes more than 1.00 when they were at India’s level of development (Owen nd).

However, while developing different scenarios, the DNEP has failed to consider the possibility of significantly reducing the role of fossil fuels. The share of fossil fuels falls from 81% in 2012 to 78% in 2040 in the Ambitious scenario and increases to 85% under the BAU scenario. With the prices for renewables falling in recent years and even proving competitive with fossil fuels, one would have expected the DNEP to assign a significantly larger role for renewables (Randall 2016).

It is in fact surprising, when there are so many uncertainties regarding how technologies will develop in the future and how the energy sector will unfold, that the DNEP has only two scenarios in the first place, BAU and Ambitious. Even so, the difference in the percentage reduction in energy demand in 2040 for these two scenarios is just 17%. This is not significant when viewed on a long-term planning horizon of 24 years. In a similar exercise done by the Planning Commission in 2006, the Integrated Energy Policy (IEP) report had 11 scenarios (GoI 2006). It is a mystery as to why the DNEP failed to carry out a full-blown scenario analysis to consider at least some out-of-the-box developments in the energy sector, discussed later.

Implications of Peak Oil Demand

We may soon see the beginning of the end of the fossil fuel erabecause of three factors: the falling cost of renewables, the rapid development of electric vehicles (EVs) that can compete with those that have internal combustion engines (ICEs), and greater awareness of climate change (Shenoy 2017b).

Instead of peak oil supply, a concept that had traction until a few years ago, we now face the possibility of peak oil demand (Lynch 2017). There is no agreement on when it will happen, but it is more than likely it may be around 2040. The DNEP has no mention of peak oil demand and its implications for India. It is also a certainty that coal will be a stranded asset in many parts of the world as coal will not be a preferred fuel in the future. The same is likely to be the case with oil and perhaps even gas.

Since peak oil demand is more than likely, India need not give a high priority to building strategic oil reserves as suggested in the DNEP. By 2040, India’s energy import dependence will go up to 36%–55% from the current level of 33%. But this need not be a cause for worry unlike in the past.

The DNEP also discusses electric vehicles only in passing. It does not discuss the possibility of India halting the production of vehicles with internal combustion engines, say by 2030, and transiting to EVs by 2040. Such a shift over time would reduce oil demand considerably. In contrast, several countries, such as Norway, France, Holland, and Germany, have declared their intention to stop the sale of petrol and diesel cars over the next 10–20 years (Chrisafis and Vaughn 2017). The DNEP should have developed at least one scenario to assess the impact of such a dramatic transformation of the auto sector on oil refining, oil demand, the power sector and energy security.

An important strategy discussed to reduce oil consumption is to promote a greater use of public transportation and the railways. This strategy has been highlighted ever since the first oil crisis in 1973. But the railways and public transportation have been losing their market share, resulting in increasing oil consumption. The DNEP should have provided a road map to achieve this very important strategy learning from past experience.

One of the objectives of DNEP is to banish energy poverty. One recommended strategy to achieve this goal is to launch the National Mission on Clean Cooking Fuels. This will enable 40% of rural residents, who are currently dependent on biomass, to have access to LPG, electricity, improved stoves, etc, by 2022. The energy share of cooking fuels is projected to drop from 23% in 2012 to 3.4% in 2040 as a result of replacing biomass fuels with cleaner fuels (Box 1). This would indeed be a dramatic shift, if it happens, and would help poor households in rural India. But there have been such ambitious goals in the past as well. Can we achieve them this time?

However, the most disappointing aspect of the DNEP is its handling of the gas sector. It suggests that India should try hard to construct the Iran–Pakistan–India (IPI) and Turkmenistan–Afghanistan, Pakistan and India (TAPI) gas pipelines, promote LNG imports, incentivise shale and conventional gas exploration, replace LPG in urban areas by piped gas and divert LPG to rural areas. All these are great suggestions, but most have been made earlier. Transnational gas pipelines like IPI and TAPI have been under discussion for over 20 years. But they have had no success (PTI 2017; Michel 2017).

DNEP does not discuss the lessons learnt from the colossal failures of both, the United Progressive Alliance and National Democratic Alliance governments to liberalise the gas market for one reason or the other. Unless this very important point is stressed enough and politicians display the courage to liberalise the gas market,India will never be able to develop its gas sector (Shenoy 2013, 2014).

It is a well-known fact that a large percentage of the energy sector subsidy is diverted and misused. This results in the generation of a huge amount of black money (Shenoy 2010). While the DNEP does mention problems of governance, it does not elaborate on such an important issue. DNEP presumes that, as subsidy delivery is streamlined using the Aadhaar platform to help the poor and farmers, politicians will stop protesting against liberalisation and they will embrace the free market. This may turn out to be a pipe dream.

The CEA’s draft New Electricity Plan (NEP), released in December 2016, had presented a rosy picture of India’s power scenario with coal power plants working at 63% plant load factor even if renewables fall short by 50,000 MW (Shenoy 2017a). It also concluded that India does not need any new coal power plants until 2027 besides the 50 GW that are under construction now. The DNEP could have discussed how India could meet all its power needs in 2040 without adding any more coal power plants even after 2027. Instead, it proposes new coal power plants with a capacity of 175 GW in the BAU case and 74 GW in the Ambitious scenario after 2022.

Throughout the report, DNEP has discussed how competitive markets in oil, coal, gas and renewables will be able to serve consumers more efficiently. It also has recommendations to improve/establish regulatory bodies for these sectors to ensure such competition. DNEP has also stressed the urgent need for trained manpower for energy sector along with recommendations. It is easy to make these suggestions, and the report has too many of them. Most of these recommendations are old. It would have been more useful and productive if the DNEP had selected and concentrated on a few critical ones. It is easy to give a laundry list of suggestions but much more difficult to highlight critical ones. We present a suggested list of critical success factors (CSFs) for different sources of energy (Box 2, p 20).

Implementing strategies, however sound they may be, has been difficult because of political compulsions. It is here that NITI Aayog should have suggested some novel ways of overcoming these obstacles after pointing out critical strategies. At one point in passing, it suggests making use of the enormous expertise available from Indians living abroad. This is an excellent suggestion. But there is no road map to implement this either, as is the case with many such suggestions.

The DNEP emphasises ever-increasing energy consumption and wants to lay the foundation for India to match the energy consumption parameters of the developed world over a long period. This is most unfortunate. It does not make sense for India to imitate the patterns of energy consumption in the developed world in the name of promoting development. In contrast, India should set a shining example to the world by promoting its civilisational value of “simple living, high thinking” and thereby contribute to attempts to limit the rise in average temperatures to 2˚c or lower as stated in the Paris Agreement on Climate Change (Shenoy 2016).

Multiple Criteria and Decision-making

The four key objectives driving the DNEP are: banish energy poverty by providing energy at an affordable price; improve energy security and independence; greater sustainability; and economic growth. No attempt has been made in the report to optimise decision-making while selecting different sources of energy based on multiple criteria like the four mentioned here.

Energy modelling may be at fault or might not have incorporated these four criteria properly. Otherwise, how could the reduction in fossil fuel contribution be only 3% when renewables are already competitive? Some analysis has been attempted to consider multiple criteria in some areas such as supplying clean cooking fuel. When LPG is promoted in rural areas, it helps to banish poverty but increases energy dependence. While reducing coal power plants by increasing LNG imports, it will reduce the emission of greenhouse gases but will also increase energy dependence and the cost of producing power. It is never easy to handle decision-making involving multiple criteria and DNEP has not discussed how it handled the multiple criteria optimisation.

One of the objectives of DNEP is to achieve energy independence. But the projections show that energy dependence increases from 31% in 2012 to 36%–55%. This is likely to be even worse if the government fails to attract investment in oil and gas exploration and to reduce demand for fossil fuels.

It is instructive to compare some of the key priorities given during the development of the IEP of 2006 with the recommended strategies for different sources of energy. The key priorities of IEP 2006 were: ensuring adequate supply of coal with consistent quality; promoting efficiency and conservation to reduce demand; ensuring gas for power generation; power sector reforms; control AT&C losses; reduction in cost of power; rationalisation of fuel prices; invest abroad to augment energy supply; optimising hydro and nuclear energy sources; promote renewables (5%–6% in 2031); ensuring energy security; promote access to electricity and clean fuels for all; climate change concerns; promote regulatory oversight for competitive efficiency.

With the exception of the coal sector—which gets less priority now—the priorities assigned in the IEP and DNEP are more or less the same. The difference is mostly in the prevailing global environment. When the IEP was being prepared, oil prices were on a higher trajectory, peak oil was still in vogue, shale oil and gas production had not yet expanded, and electric vehicles were not on the horizon. The IEP stressed power sector reforms, wanted to promote energy efficiency, renewables, energy security, clean energy and electricity for all, demand side management, etc. These are also the goals of the DNEP. As the IEP failed in achieving most of these goals to varying degrees, the DNEP ought to have at least discussed how to overcome the problems faced earlier. Such a discussion would have helped in designing an appropriate road map.

In conclusion, NITI Aayog should redo the study, have a full-blown scenario analysis, select a few critical strategies, and present a road map for their implementation.

References

BP (2017): BP Statistical Review of World Energy 2017, https://www.bp.com/content/dam/bp/en/corporate/pdf/energy-economics/statistical-review-2017/bp-statistical-review-of-world-energy-2017-full-report.pdf.

Chrisafis, Angelique and Adam Vaughn (2017): “France to Ban Sales of Petrol and Diesel Cars by 2040,” Guardian, 6 July, https://www.theguardian.com/business/2017/jul/06/france-ban-petrol-diese....

GoI (2006): Integrated Energy Policy: Report of the Expert Committee, New Delhi: Planning Commission of India, http://planningcommission.gov.in/reports/genrep/rep_intengy.pdf.

— (2017): Draft National Energy Policy, New Delhi: NITI Aayog, http://niti.gov.in/writereaddata/files/new_initiatives/NEP-ID_27.06.2017.pdf.

Lynch, Michael (2017): “What the Prophets of Peak Oil Are Missing,” Forbes, 26 May, https://www.forbes.com/sites/michaellynch/2017/05/26/peak-oil-demand-a-l....

Michel, Casey (2017): “Survey Projects Show Progress on TAPI Pipeline,” The Diplomat, 12 April, http://thediplomat.com/2017/04/survey-projects-show-progress-on-tapi-pip....

Owen, Anthony (nd): “Energy–Economy Interactions,” Encylopedia of Life Support Systems, http://www.eolss.net/sample-chapters/c08/e3-21-02-10.pdf.

PTI (2017): “India Should Revive IPI Gas Pipeline: Panel,” Live Mint, 19 March, http://www.livemint.com/Industry/JRiA9MVW3VCbuRsUXV0x8O/India-should-rev....

Randall, Tom (2016): “World Energy Hits a Turning Point: Solar That’s Cheaper than Wind,” 15 December, https://www.bloomberg.com/news/articles/2016-12-15/world-energy-hits-a-turning-point-solar-that-s-cheaper-than-wind.

Shenoy, Bhamy V (2010): Lessons Learned from Attempts to Reform India’s Kerosene Subsidy, Geneva: International Institute for Sustainable Development, http://www.iisd.org/gsi/sites/default/files/lessons_india_kerosene_subsi....

— (2013): “Gas Pricing: Can we Learn from the US Shale Revolution?” Deccan Herald, 21 May, http://www.deccanherald.com/content/333591/gas-pricing-can-we-learn.h.

— (2014): “Liberalise Gas Sector, Allow Market Forces to Shape Its Destiny,” Deccan Herald, 15 December, http://www.deccanherald.com/content/447670/liberalise-gas-sector-allow-m....

— (2016): “Reform Lifestyle,” Deccan Herald, 11 January, http://www.deccanherald.com/content/522384/reform-lifestyle.html.

— (2017a): “Draft Electricity Plan Paints Rosy Picture of Power Scenario,” Deccan Herald, 28 January, http://www.deccanherald.com/content/593504/draft-electricity-plan-paints....

— (2017b): “Is It the Beginning of the End of Oil Era?,” Deccan Herald, 13 June, http://www.deccanherald.com/content/617019/is-beginning-end-oil-era.html.

Updated On : 28th Jul, 2017

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