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Blogspot by Prateek Goel: Challenges in the Indian Energy Market

 

India is one of the fastest developing countries in the world. With a high rate of growth there are problems associated with increasing demand of primary requirements such as water, energy and food. India faces a similar situation in its energy market and is currently unable to cope up with the rising demand. The country faces severe threats in its energy market primarily due to the significant dependence on expensive imports and obsolete infrastructure. To achieve its long term goal of energy for all, India needs to make several changes in its policies.

In 2010, India’s largest primary energy source was coal, with a share of about 40% followed by oil with a share of roughly 24%. Fossil fuels together account for about 70% of India’s energy demand. Renewables without hydro have a negligible contribution of less than 3% to the total power generation. Furthermore, India has the fourth largest power demand in the world after China, the US and Russia. In order to eradicate poverty, the country’s annual economic growth needs to be at least 8 % until 2032 and in the same time, the power capacity needs to rise to as high as around 800 GW.

Addition to the increasing power demand, India faces the major challenge of transmission and distribution (T&D) losses, which amount to about 22% (nationwide average) This leads to a loss of about 200 TWh of electricity annually. Just to give a perspective of the magnitude of this loss, if this were to be generated using solar power, a capacity of about 130 GW would be required compared to the meager 2 GW installed today. Electric power transmission and distribution losses include losses in transmission between sources of supply and points of distribution and in the distribution to consumers, including pilferage. The primary reasons for these substantial losses are theft, out dated equipment, low efficiency of transmission and distribution and too many stages of transformation. Clearly, reduction in distribution losses can reduce the power deficit in India significantly. It is possible to bring down the distribution losses to a 6-8 % level in India with the help of newer technological options (including information technology) in the power distribution sector, which will enable better monitoring and control as well as significantly improving the efficiency of equipment used.

Moreover, India faces the challenge of increasing dependence on imports. This exposes India to greater geopolitical risks, fluctuating world market prices and intensifying international competition. Increasing dependency on fossil fuels is a serious concern both in terms of energy insecurity and financial burden. During the 11th five year plan, India’s coal demand increased at a CAGR of 8.5%. However, Coal India Limited’s (CIL) domestic production increased at a CAGR of only 4.6%. The direct outcome of sluggish domestic coal production is the considerable increase of imported coal. India’s coal imports have more than doubled over the last five years. India spent about USD 90 billion on importing crude oil in 2010-11. This represented about 25% of the total import bill. The depreciation of the Indian currency and the increase in international oil prices has increased this bill substantially.  With respect to gas, imports accounted for 28% of the total Indian gas supply in 2011-12. Moreover, this is expected to increase to almost 70% by 2017. Although, unconventional gas created a power revolution in the US and is expected to do the same in China, it is unlikely  to have any effect on the Indian power market in the medium term due to significant investments required and keeping in mind that India has not taken any significant steps in that direction.

To resolve these major ground level challenges, India needs immediate reforms and a revised integrated energy policy. To match the rising demand sustainably it first needs to improve the condition of the existing infrastructure, reduce pilferage and reduce commercial losses. Privatization of DISCOMs has led to a significant improvement in the electricity situation. More such steps are needed in the near future.

 

Prateek Goel is a Market Intelligent Consultant in the field of Solar PV for Bridge to India Energy Pvt. Ltd.

Edited by Thirze Hermans, Assistant Content Manager Global Energy Professionals.