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Integrated Energy Policy

Report of the Expert Committee

Government of India
Planning Commission
New Delhi

August 2006
Integrated Energy Policy

We, the Members of the “Expert Committee on Integrated Energy Policy”, hereby submit our Final Report.

Kirit S. Parikh
Chairman, Expert Committee
Member, Planning Commission, Government of India

T.L. Sankar Amit Mitra

Ex-Principal, Administrative Staff College of India Secretary General, FICCI

Leena Srivastava D.S. Rawat

Executive Director, TERI Secretary General, ASSOCHAM

J.L. Bajaj V. Raghuraman

Ex-Chairman, SERC Representative of Confederation of Indian Industry

Rangan Banerjee Urjit R. Patel

Professor, IIT, Mumbai Executive Director, IDFC

Ajit Kapadia Pradeep Chaturvedi

Vice Chairman, Centre for Fuel Studies & Research The Institution of Engineers (India)

Subimal Sen R.R. Shah

Member, West Bengal Planning Board Member Secretary, Planning Commission

R.V. Shahi M.S. Srinivasan

Secretary, Ministry of Power Secretary, Ministry of Petroleum & Natural Gas

Anil Kakodkar Prodipto Ghosh

Secretary, Deptt. of Atomic Energy Secretary, Ministry of Environment & Forests

V. Subramanian H.C. Gupta

Secretary, Ministry of Non-conventional Energy Secretary, Ministry of Coal


Surya P. Sethi
Adviser (Power & Energy), Planning Commission

Integrated Energy Policy

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Energy is a vital input into production and this means that if India is to
move to the higher growth rate that is now feasible, we must ensure reliable
availability of energy, particularly electric power and petroleum products, at
internationally competitive prices. We cannot hope to compete effectively in
world markets unless these critical energy inputs are available in adequate quantities
and at appropriate prices.

The present energy scenario is not satisfactory. The power supply position
prevailing in the country is characterised by persistent shortages and unreliability
and also high prices for industrial consumer. There is also concern about the
position regarding petroleum products. We depend to the extent of 70 percent on
imported oil, and this naturally raises issues about energy security. These concerns
have been exacerbated by recent movements in international oil prices. Electricity
is domestically produced but its supply depends upon availability of coal,
exploitation of hydro power sources and the scope for expanding nuclear power,
and there are constraints affecting each source.

Achieving an efficient configuration of the various forms of energy

requires consistency in the policies governing each sector and consistency in the
pricing of different types of energy. There is also a need for clarity in the direction
in which we wish to move in aspects like energy security, research and development,
addressing environmental concerns, energy conservation, etc. To address these
issues in an integrated manner, the Prime Minister had directed that the Planning
Commission should constitute an Expert Committee to undertake a comprehensive
review and to make recommendation for policy on this basis. The Expert
Committee was constituted under the chairmanship of Dr. Kirit S. Parikh,
Member, Planning Commission and has finalised its report after an extensive
process of deliberation and consultation with various stakeholders. The draft
report was also placed on the web site of the Planning Commission and comments
were invited which have been taken into consideration in preparing the final

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Yojana Bhawan, Parliament Street, New Delhi-110001 Phones : 23096677, 23096688 Fax : 23096699
E-MAIL : dch@yojana.nic.in

Integrated Energy Policy

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The report of the Expert Committee provides a broad overarching

framework for guiding the policies governing the production and use of different
forms of energy from various sources. It makes specific recommendations on a
very large range of issues. The report is a valuable input into policy making and
will help shape our energy policy in the 11th Plan. Early implementation of the
recommendations in the report would contribute substantially to putting the
economy on a sustainable higher growth path.

(Montek S. Ahluwalia)

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Yojana Bhawan, Parliament Street, New Delhi-110001 Phones : 23096677, 23096688 Fax : 23096699
E-MAIL : dch@yojana.nic.in


The energy policies that we have adopted since independence to serve the socio-economic
priority of development have encouraged and sustained many inefficiencies in the use and
production of energy. We pay one of the highest prices for energy in purchasing power parity
terms. This has eroded the competitiveness of many sectors of the economy. The challenge is to
ensure adequate supply of energy at the least possible cost. Another important challenge is to
provide clean and convenient “lifeline” energy to the poor even when they cannot fully pay for
it, as it is critical to their well-being. Therein lies the importance of an effective and comprehensive
energy policy.

In this context, the Prime Minister had directed the Planning Commission, to setup an
Expert Committee to prepare an integrated energy policy linked with sustainable development
that covers all sources of energy and addresses all aspects of energy use and supply including
energy security, access and availability, affordability and pricing, as well as efficiency and
environmental concerns. The committee was constituted on August 12, 2004 and was to submit
its report within six months i.e., by February 11, 2005. Given the complexity involved and wider
consultation needed, the term of the committee was extended upto 11th October 2005. The draft
report of the Committee was put on the website of Planning Commission inviting comments. We
received a large number of them from individuals, groups and institutions some of whom had
organised special discussion meetings on the draft report. I thank them all. We have finalised the
report after taking these comments into account. While the finalisation of the report has taken
some time, it is worth noting that some of the policy suggestions made in the draft report have
been in the meanwhile taken up by the Government for implementation.

It is my pleasure and also my privilege to thank all the Members of the Committee for
their many important suggestions and for sparing their valuable time towards the finalisation of
this report.

I am also thankful to the officers and staff of the Power & Energy Division of the
Planning Commission for their contributions in the preparation of this report, particularly Shri
Surya Sethi, Convenor of the Committee, for his many ideas, contributions, help in drafting the
report and for ensuring consistency and clarity. S/Shri R.C. Mahajan, M. Satyamurty, R.K. Kaul,
I.A. Khan, B. Srinivasan, Dr. A. Mohan, D.N. Prasad, Rajnath Ram and Dr. M. Govinda Raj
provided many inputs and support.

I also thank Dr. Vivek Karandikar and Dr. Prasanna Dani of the Observer Research
Foundation for their help in developing energy supply scenarios.

Finally, I want to thank Shri Sanjay Vasnik for diligently, carefully and cheerfully typing
many drafts of the report.

(Dr. Kirit S. Parikh)

Member (Energy),
Planning Commission &
Chairman, Expert Committee on Integrated Energy Policy
Dated: 09.08.2006

Integrated Energy Policy


Page No.
Members of the Committee iii
Foreword v
Preface vii
Overview xiii
Abbreviations Used xxxi

Chapter I. The Challenges 1

1.1 The Energy Scene 1
1.2 The Issues 13
1.3 The Vision 14
1.4 Need for an Integrated Energy Policy 15
1.5 Approach 16

Chapter II. Energy Requirements 18

2.1 Commercial Energy Needs 18
2.2 Required Electricity Generation 19
2.3 India’s Oil Demand 22
2.4 India’s Coal Demand for Non-Power Use 23
2.5 India’s Non-Power Natural Gas Demand 23
2.6 Total Primary Commercial Energy Requirement 26
2.7 Non-Commercial Energy Requirement 28
2.8 Total Primary Energy Requirement 31
2.9 Summing Up 31

Chapter III. Supply Options 33

3.1 India’s Energy Reserves 33
3.2 Supply Scenarios 40
3.3 Implications of the Results of the Scenarios 41
3.3.1 Aggregate Energy Needs and Imports Dependence 45
3.3.2 Energy Supply Options 45
3.3.3 Energy Efficiency and Demand Side Management 48
3.3.4 Carbon Emissions 50
3.3.5 Implications for Investment Needs 50
3.3.6 The Main Actions Recommended 51
3.4 Energy Independence in an Energy Scarce World 51

Chapter IV. Energy Security 54

4.1 What is Energy Security? 54
4.2 The Nature of the Problem 55

Integrated Energy Policy

4.3 Policy Options for Energy Security 57

4.3.1 Reduce Energy Requirements 57
4.3.2 Substitute Imported Energy by Domestic Alternatives 58
4.3.3 Diversify Supply Sources 60
4.3.4 Expand Resource Base and Develop Alternative Energy Sources 61
4.3.5 Increase Ability to Withstand Supply Shocks 64
4.3.6 Increase Ability to Import Energy and Face Market Risks 65
4.3.7 Increase Redundancy to Deal with Technical Risk 65
4.4 Energy Security for the Poor 66
4.5 Policies and Initiatives for Energy Security 66

Chapter V. Energy Policy Options/Initiatives 68

5.1 The Emerging Backdrop 68
5.2 Policies Covering Energy Markets, Pricing, Regulation, Taxation, Subsidies, 71
Externalities and Institutions

Chapter VI. Policy for Energy Efficiency and Demand Side Management 81
6.1 Large Potential for Saving Energy 81

Chapter VII. Policy for Renewable and Non-Conventional Energy Sources 89

Chapter VIII. Household Energy Security: Electricity and Clean Fuels for All 99
8.1 Electricity 100
8.2 Cooking Energy 101
8.3 Subsidy through Debit Cards/Smart Cards 102

Chapter IX. Energy R&D 103

Chapter X. Power Sector Policy 109

Chapter XI. Coal Sector Policy 115

Chapter XII. Oil and Gas Sector Policy 123

Chapter XIII. Energy-Environment Linkages 129

13.1 Energy Supply Side: Environment Concerns 129
13.1.1 Exploration, Production and Transformation of Fossil Fuels 129
13.1.2 Environmental Impacts of Nuclear Power 130
13.1.3 Environmental Impacts of Large-Scale Hydropower 130
13.1.4 Environmental Impacts of Renewable Energy 131
13.2 Environmental Dimensions of Demand Side Impacts 131
13.3 Understanding the Determinants of Air Quality 131
13.3.1 Levels and Trend Analysis of Urban air quality in five major Indian cities 132
13.4 Long-term Sustainability of India’s Energy Use 132
13.4.1 Local and Regional Impacts 132
13.4.2 India’s Approach to Climate Change 135


Concluding Comment 137

Annexures 138
Annexure-I Order Constituting the Committee 138
Annexure-II Gist of Earlier Energy Policy Committees/Groups 141
Annexure-III Calorific Values, Units and Conversion Factors 147

List of Tables
Table 1.1 Selected Energy Indicators for 2003 1
Table 1.2 Household Energy Consumption in India (July 1999 – June 2000) 8
Table 1.3 Growth of Motorised Transport Vehicles 10
Table 2.1 Energy Use Elasticity w.r.t. GDP 18
Table 2.2 Elasticities Used for Projections 19
Table 2.3 Energy Use Elasticity w.r.t. GDP from Cross-Country Data of 2003 19
Table 2.4 Projections for Total Primary Commercial Energy Requirements 20
Table 2.5 Projections for Electricity Requirement 20
Table 2.6 Projections for Electricity Requirement by MOP 21
Table 2.7 Sources of Electricity Generation – One Possible Scenario 22
Table 2.8 Demand Scenario for Petroleum Products - India 24
Table 2.9 Demand Projection of Coal by Various Agencies in Mt 25
Table 2.10 Demand Scenario for Natural Gas - India 27
Table 2.11 Commercial Fuel Requirements for Non-Power Use in Physical Units 28
Table 2.12 Projected Primary Commercial Energy Requirements (One Possible Scenario) 28
Table 2.13 The Demand Scenario of Various Energy Items for Household 29
Consumption in India
Table 2.14 The Impact of Electrification on the Demand Scenario of Various Energy 30
Items for Household Consumption
Table 2.15 Total Primary Energy Requirement (Mtoe) 31
Table 2.16 Per Capita Energy Requirements in Selected Countries (2003) 32
Table 3.1 India’s Hydrocarbon Reserves 33
Table 3.2 Reserves/Production of Crude Oil & Natural Gas 35
Table 3.3 The Approximate Potential Available From Nuclear Energy 36
Table 3.4 Possible Development of Nuclear Power Installed Capacity in MW 37
Table 3.5 Renewable Energy Resources 37
Table 3.6 Some Energy Supply Scenarios for 8% GDP Growth 41
Table 3.7 Scenario Summaries for 8% GDP Growth — Fuel Mix in Year 2031-32 44
Table 3.8 Ranges of Commercial Energy Requirement, Domestic Production and 45
Imports for 8 percent Growth for year 2031-32
Table 3.9 Generation Capacities and Load Factors in Scenario 11 46
Table 3.10 Primary Energy Supply Sources (2003-04) 52
Table 4.1 Sources of India’s Oil Imports – 2004-05 59
Table 7.1 Capital Costs and the Typical Cost of Generated Electricity from 90
the Renewable Options
Table 7.2 International Feed-in Tariffs 91

Integrated Energy Policy

Table 13.1 Environmental Impacts Associated with Energy Transformation 129

Based on Fossil Fuels
Table 13.2 Supply Side, Local and Regional Environmental Impacts 130
Table 13.3 India Approved CDM Projects 135

List of Figures
Figure 1.1 Total Primary Energy Supply (TOE) Per Capita (2003) vs. GDP Per Capita 2
(PPP US$2000)
Figure 1.2 Kilo Watt hours of Electricity Consumption Per Capita (2003) vs. 3
GDP Per Capita (PPP US$2000)
Figure 1.3 Human Development Index (HDI) vs. Electricity Consumption 3
Per Capita in 2002
Figure 1.4 Peak Power and Energy Shortages in States/UTs. 2004-05 4
Figure 1.5 Distribution of Households by Primary Source of Energy Used 6
for Cooking- India
Figure 1.6 Pattern of Household Energy Consumption
Figure 1.6(a) Monthly Per Capita Household Consumption 8
Pattern Urban India, 2000
Figure 1.6(b) Monthly Per Capita Household Consumption 8
Pattern Rural India, 2000
Figure 1.7 Domestic Consumption and Production of Crude Oil 9
Figure 1.8 Growth of Transport Vehicles and Two Wheelers 10
Figure 2.1 Projected Electricity Generation Growth (BkWh) 21
Figure 2.2 Plan-wise Projected Installed Capacity Addition (MW) 21
Figure 2.3 Percentage Share of Commercial Primary Energy Resources—2003-04 29
and 2031-32
Figure 2.4 Percentage of Households Using LPG 30
Figure 3.1 Fuel Mix Comparison in Year 2031-32 42
Figure 3.2 Coal Dominant Scenario 1 - Fuel Mix Year-Wise 42
Figure 3.3 Forced Hydro, Nuclear and Gas Scenario 5 - Fuel Mix Year-Wise 43
Figure 3.4 Forced Renewables Scenario 11 - Fuel Mix Year Wise 43
Figure 3.5 CO2 From Energy Use in Alternative Scenarios in Year 2031-32 50
Figure 4.1 India’s Growing Share in Global Energy Consumption (Higher Projections) 56
Figure 4.2 World Oil Prices 56
Figure 6.1 Reduction in the Energy Consumption of Refrigerators Sold in the 87
United States of America
Figure 7.1 Renewable Energy Options 89
Figure 13.1 Air Pollution in Residential Areas 133
Figure 13.2 Air Pollution in Industrial Areas 134

List of Boxes
Box 1.1 The Burden of Traditional Fuels in Rural India 7
Box 6.1 Bureau of Energy Efficiency (BEE) 82
Box 6.2 Initial Cost and Life Cycle Cost 86
Box 11.1 Delivered Cost of Domestic and Imported Thermal Coal 119



India faces formidable challenges in Considering the shocks and disruptions that
meeting its energy needs and in providing can be reasonably expected, assured supply of
adequate energy of desired quality in various such energy and technologies at all times is
forms in a sustainable manner and at essential to providing energy security for all.
competitive prices. India needs to sustain an Meeting this vision requires that India pursues
8% to 10% economic growth rate, over the all available fuel options and forms of energy,
next 25 years, if it is to eradicate poverty and both conventional and non-conventional.
meet its human development goals. To deliver Further, India must seek to expand its energy
a sustained growth rate of 8% through 2031-32 resource base and seek new and emerging
and to meet the lifeline energy needs of all energy sources. Finally, and most importantly,
citizens, India needs, at the very least, to increase India must pursue technologies that maximise
its primary energy supply by 3 to 4 times and, energy efficiency, demand side management
its electricity generation capacity/supply by 5 and conservation. Coal shall remain India’s
to 6 times of their 2003-04 levels. With 2003- most important energy source till 2031-32 and
04 as the base, India’s commercial energy supply possibly beyond. Thus, India must seek clean
would need to grow from 5.2% to 6.1% per coal combustion technologies and, given the
annum while its total primary energy supply growing demand for coal, also pursue new coal
would need to grow at 4.3% to 5.1% annually. extraction technologies such as in-situ
By 2031-32 power generation capacity must gasification to tap its vast coal reserves that are
increase to nearly 8,00,000 MW from the difficult to extract economically using
current capacity of around 1,60,000 MW conventional technologies.
inclusive of all captive plants. Similarly
requirement of coal, the dominant fuel in The approach of the Committee is
India’s energy mix will need to expand to over directed to realising a cost-effective energy
2 billion tonnes/annum based on domestic system. For this the following are needed:
quality of coal. Meeting the energy challenge is
of fundamental importance to India’s economic (i) Wherever possible, energy markets
growth imperatives and its efforts to raise its should be competitive. However,
level of human development. competition alone has been shown to
have its limitations in a number of
The broad vision behind the energy areas of the energy sector and
policy is to reliably meet the demand for independent regulation becomes even
energy services of all sectors at competitive more critical in such instances.
prices. Further, lifeline energy needs of all (ii) Pricing and resource allocations that
households must be met even if that entails are determined by market forces under
directed subsidies to vulnerable households. an effective and credible regulatory
The demand must be met through safe, clean oversight.
and convenient forms of energy at the least-
(iii) Transparent and targeted subsidies.
cost in a technically efficient, economically
viable and environmentally sustainable manner. (iv) Improved efficiencies across the energy

Integrated Energy Policy

(v) Policies that reflect externalities of commercial energy consumption and

energy consumption. about 78% of domestic coal production
(vi) Policies that rely on incentives/ is dedicated to power generation. This
disincentives to regulate market and dominance of coal in India’s energy
consumer behaviour. mix is not likely to change till 2031-32.
Since prices were de-controlled, the
(vii) Policies that are implementable.
sector has become profitable primarily
(viii) Management reforms that create as a result of price increases and the
accountability and incentives for rising share of open cast production.
efficiency. India would need to augment domestic
production and encourage thermal coal
A competitive market without any imports to meet its energy needs. The
entry barriers is theoretically the most efficient Committee has concluded that along
way to realise optimal fuel and technology the western and southern coasts of
choices for extraction, conversion, India imported coal is more cost
transportation, distribution and end use of competitive compared to domestic coal
energy. The tax structure and regulation across and further, imported coal is far more
energy sub-sectors should be consistent and cost competitive compared to imported
institutional arrangements should provide a gas at these coastal locations. Such a
level playing field to all players. Social objectives cost advantage of imported coal over
should ideally be met through direct transfers. imported gas is likely to continue for
Environmental externalities should be treated some time in the future. Thus:
uniformly and internalised. A consistent  Domestic coal production should
application of “polluter pays” principle may be be stepped up by allotting coal
made to attain environmental objectives at blocks to central and state public
least-cost where prescribed environmental sector units and captive mines of
norms are either not applied consistently or notified end users. Coal blocks held
not being adhered to. An energy market with by Coal India Limited (CIL) that
the above features would minimise market cannot be brought into production
distortions and maximise efficiency gains. An by 2016-17, either directly or
integrated energy policy is needed to ensure through joint ventures, should be
that energy costs and availability do not made available to other eligible
constrain India’s economic growth and candidates for development and for
competitiveness. bringing into production by 2011-
While the medium to long-term
 At the same time the needed
challenges of ensuring competitive energy
infrastructure must be created to
markets are formidable, the immediate
facilitate thermal coal imports. This
problems of acute power shortages, adequate
will facilitate coastal power
supply of good coal, gas shortages, and concerns
generation capacity based on
of States rich in coal and hydro resources
imported thermal coal. Imports of
require immediate policy action. Our
thermal coal will also put
recommendations address immediate as well as
competitive pressure on the
the medium to long-term issues.
domestic coal industry to be more
Key, high priority recommendations
are summarised below:  A system of pricing coal on its
gross calorific value must replace
(i) Ensuring Adequate Supply of Coal the current system of pricing coal
with Consistent Quality: Coal on the basis of broad bands of its
accounts for over 50% of India’s useful heat value.


 Coal companies must be asked to allowing the state or its residents an

conform to international practice opportunity to invest in such projects
of preparing coal prior to its sale. on equal terms and appropriately
Washed coal must become the revising the royalty rate etc. are possible
norm and use of unwashed coal solutions to removing hurdles in
should become the exception. exploiting these domestic sources of
 The current system of coal linkages primary energy. The NDC must take
should be replaced by long-term up this issue immediately in respect of
coal supply agreements with strict coal and hydro resources. Over the
penalties for not meeting contracted longer term, a National Policy on
supplies, quality and offtake Domestic Natural Resources should be
commitments. formulated and enacted through the
 Coal must be brought under
independent regulation to improve (iii) Ensuring Availability of Gas for
exploitation and allocation of Power Generation: There is a total
available resources, and to regulate generation capacity of 12,604 MW based
e-auctions and coal prices and to on gas and liquid fuels. Bulk of it is
enable a competitive coal market base loaded under combined cycle
to take shape. operation. However, gas supplies have
been restricted and the overall
 By the end of 2007-08 the quantity
utilisation remains at only 54.5%. A
of coal sold through e-auction must
significant part of this capacity was
reach 20% of domestic production.
realised under the earlier liquid fuel
 Ideally, the Coal Mines policy while the rest has been built
(Nationalisation) Act, 1973, should based on unenforceable fuel supply
be amended to facilitate: (a) private agreements that would have been
participation in coal mining for unbankable in any other environment.
purposes other than those specified While requiring that no new gas
in the Act and (b) offering of future capacity be built without firm and
coal blocks to potential bankable gas supply agreements, effort
entrepreneurs. A consensus should should be made to allocate available
be built on the need to reform this domestic gas supplies to the fertiliser,
Act. petrochemicals, transport and power
(ii) Addressing Concern of Resource Rich sectors at prices that are regulated to
States: Both coal and hydro resources yield a fair return to domestic gas
are concentrated in a few states. producers. Such a practice should be
Increasingly states are becoming more enforced till a better demand-supply
assertive in demanding higher share of balance emerges and domestic gas
benefits that their local energy resources production achieves some of the
provide to the country as a whole. potential that is often cited. A more
Even though these are national competitive market can then function.
resources and should not be rendered (iv) Power Sector Reforms: These must
uncompetitive because of such focus on controlling the aggregate
demands, it is conceivable that technical and commercial losses of the
mechanisms can be put in place that state transmission and distribution
result in resource rich states reaping utilities. This is essential to creating a
more equitable benefits. Allowing financially robust power sector in each
resource rich States a share in the profits state. Only financially healthy state
of the enterprise tapping such local power distribution utilities can sustain
resources through what is called a the growing generation and
“carried equity interest” and further transmission of Central Power Sector

Integrated Energy Policy

PSUs and State Power Sector Utilities network for a fee and thus can be
(SPSUs) and provide the needed realised even before AT&C losses
comfort on payment security to attract are reduced.
private investment in the power sector  To achieve these objectives, the
at internationally competitive tariffs. Committee feels that it is essential
Our recommendations: to separate the cost of the pure
 To control AT&C losses, the wires business (carriage) from the
Committee recommends that the energy business (content) in both
existing Accelerated Power transmission and distribution at
Development and Reform different voltages. The Electricity
Programme (APDRP) be Act 2003 recognises such separation
restructured to ensure energy flow for the transmission sub-segment.
auditing at the distribution Separation of content from carriage
transformer level through in the distribution sub-segment,
automated meter reading, a however, is considered only as a
Geographical Information System means to the provision of open
(GIS) mapping of the network and access. The wires business within
consumers and the separation of the distribution sub-segment is also
feeders for agricultural pumps. a natural monopoly and must be
Investment in developing a regulated. Further, introduction of
Management Information System Availability Based Tariffs (ABT) for
(MIS) that can support a full energy the intra-state sales and the
audit for each distribution upgrading of State Load Despatch
transformer is essential for Centres to the technological level
reduction in AT&C losses. This of Regional Load Despatch Centres
will also fix accountability and should be realised.
provide a baseline which is an  Open access is resisted by
essential prerequisite to incumbents as they fear that all the
management reform and/or high value paying customers would
privatisation. The revised APDRP go away and they would be left
will provide incentives to State with small and subsidised
Electricity Boards (SEBs) that are agricultural and domestic
linked to performance outcomes customers. Since these customers
and will also include incentives to have strong political constituencies,
staff for reduction in AT&C losses. it may be difficult to raise their
 The Committee also recommends tariffs when needed and the
that the liberal captive and group incumbent utilities would not
captive regime foreseen under the remain viable for long. These
Electricity Act 2003 be realised on concerns can be taken care of if the
the ground. India’s liberal captive cross-subsidy surcharge, wheeling
regime will not only derive charge and back-up charge are set
economic benefits from the properly. However, if these are set
availability of distributed generation too high, open access could be
but will also set competitive effectively thwarted. These charges
wheeling charges to supply power need to be periodically revised and
to group captive consumers. This independently regulated.
will pave the way for open access  A robust and efficient inter-state
to distribution networks. It will and intra-state transmission system
also facilitate private generation that with adequate surplus capacity that
limits its interface with the host is capable of transferring power
utility to the use of the distribution from surplus regions to deficit


regions is a must for ensuring utilities should be strongly opposed

optimal operation of the system. in the interest of strengthening fair
 Rehabilitation of existing thermal competition which alone will bring
stations could raise capacity at least- down prices in the long-run.
cost in the short-run. Similarly Similarly differential payment
rehabilitation of hydro stations security structures for Central
could yield much needed peak Power Sector PSUs and the private
capacity at negligible cost. Both sector should be abolished.
these steps must be taken up  Consumer prices for electricity are
urgently. currently set by State Electricity
(v) Reduction in Cost of Power: In terms Regulatory Commissions on cost
of purchasing power parity, power plus basis. Regulators should set
tariffs in India for industry, commerce multi-year tariffs and differentiate
and large households are among the them by time of day.
highest in the world. It is important to  Government should seed the capital
reduce the cost of power to increase markets to develop market-based
both the competitiveness of the Indian instruments that effectively extend
economy and also to increase consumer the tenure of debt available to
welfare. A number of measures are power projects to, perhaps, 20
suggested for this. years. This will reduce the capacity
 The Government Policy should charge in the earlier years and
ensure that all generation and spread it more evenly over the life
transmission projects should be of the project.
competitively built on the basis of  Unit sizes should be standardised
tariff-based bidding. Public Sector and global tenders invited for a
Undertakings shall also be number of units to get substantial
encouraged to participate in such bulk discount.
bids even though the tariff policy  Distribution should be bid out on
allows them a 5 year window the basis of a distribution margin
wherein projects undertaken by the or paid for by a regulated
public sector need not be bid distribution charge determined on
competitively. a cost plus basis including a profit
 In cases where tariff continues to mark up similar to that paid for
be determined on the basis of costs generation as suggested above.
and norms, regulators may either (vi) Rationalisation of Fuel Prices:
adopt a return on equity approach Relative prices play the most important
or return on capital approach, role in choice of technology, fuel and
whichever is considered better in energy form. They are thus the most
the interest of consumers. In vital aspect of an Integrated Energy
deciding the level of return Policy that promotes efficient fuel
provided, the regulator should inter- choices and facilitates appropriate
alia take into account the return substitution. In a competitive set up,
available on long-term government the marginal use value of different fuels,
bonds and reasonable risk which are substitutes, should be equal
premiums associated with equity at a given place and time so that the
investments. prices of different fuels at different
 The current practice of state places do not differ by more than the
regulators not allowing state public cost of transporting the fuels. The
sector power utilities the same resulting inter-fuel choices will then be
returns as the central public sector economically efficient. Further:

Integrated Energy Policy

 Prices of different fuels should not GOI continues to control the

be set independently of each other. pricing of automotive fuels, LPG,
As a general rule, all commercial large part of domestic natural gas
primary energy sources must be and PDS kerosene. There is no real
priced at trade parity prices at the competition in the sector other
point of sale, namely the Free-on- than in some peripheral products
Board (FOB) price for products for such as lubricants, despite the
which the country is a net exporter presence of a large domestic private
and Cost, Insurance and Freight player in refining and the likely
(CIF) price for which it is a net emergence of other private players
importer. The price of a product in this field. In fact, the prevailing
for which the country is self- pricing and taxation policies and
sufficient in a competitive market the market structure provide
with many suppliers and buyers significant protection to the private
would fluctuate between the two refineries. The result is that India’s
depending upon the ease of import/ refining capacity exceeds the
export and reliability of supplies. demand by 18% already. There is
In a situation with a monopoly an urgent need to have an
supplier with exportable surplus at independent regulator for both
import parity price, the price would upstream and downstream sectors.
be in between the two depending The notification of the Petroleum
on the price elasticity of domestic & Natural Gas Regulatory Board
demand. This principle is extremely Act, 2006, is thus welcome.
relevant for the petroleum sector  In the petroleum sector, full price
wherein bulk of the crude oil is competition at the refinery gate
imported and India has become a and the retail level would lead to
net exporter of petroleum products. trade parity prices as described
 To cushion domestic prices against above. Thus instead of
short-term volatility of prices on administering prices, full price
the international market (FOB or competition should be introduced.
CIF) domestic prices can be set on  Coal prices should ideally be left
the basis of median prices over the to the market and trading of coal,
previous month or a three month nationally and internationally,
period. should be free. Only a competitive
 The petroleum and natural gas free market can do an efficient job
sector is, once again, devoid of any of price determination. A
competition and independent competitive market requires that
oversight of either upstream or there are multiple producers and
downstream activities. On the that there are no entry barriers to
upstream side, Directorate General new producers or to importers.
Hydrocarbons (DGH), an arm of Pending the creation of such a
the Ministry, oversees allocation competitive market, independent
and exploitation of oil & gas regulation of coal prices becomes
reserves and enforces profit sharing essential.
with exploration & production  Apart from CIL’s virtual monopoly
companies. The current in coal supply, coal prices cannot
arrangement needs to be be determined in a competitive
strengthened and made market open to all users as long as
independent. On the downstream the largest coal consuming sector,
side, despite the dismantling of the i.e. power, has coal cost as a pass
Administered Price Mechanism, the through. However, since other


users of coal are numerous and Calorific Value (GCV) and

consume substantial quantities of other quality parameters.
coal, a strategy for competitive price  Natural Gas is not an easily tradable
discovery is possible. We commodity. Making gas tradable
recommend as follows: requires significant investments in
• High quality coking and non- pipelines or, alternatively, in
coking coal which are liquefaction, cryogenic shipping &
exportable may be sold at regasification. Comparing local gas
export parity prices as prices to spot LNG prices in the
determined by import price international market is grossly
at the nearest port minus misleading. Again, linking gas prices
15%. This practise is to crude price movements is also
currently being adopted for misleading. Long-term supply
supply of good quality coking contracts such as those in Europe
coal to the steel industry. are more representative of natural
• 20% of the production may gas prices. Natural gas price can be
be sold through e-auction. determined through competition
Quantities to be sold through among different producers where
e-auction from different multiple sources and a competitive
mines must be determined supply-demand balance exist. As
annually with a monthly long as there is shortage of gas in
mine-wise schedule to be the country and the two major
independently monitored and users of gas, namely fertiliser and
enforced by a coal regulator. power, work in a regulated cost
plus environment, a competitive
• Remaining coal should be
market determined price would be
sold under long-term Fuel
highly distorted. Such distortions
Supply and Transport
would get further amplified by the
Agreements (FSTAs).
prevailing regime of fertiliser
Regulated utilities should be
subsidies & power sector subsidies
allowed upto 100% of their
and cross subsidies. In such a
certified requirements
situation price of domestic gas and
through FSTAs. Other bulk
its allocation should be
consumers could be allowed
independently regulated on a cost
partial FSTAs based on coal
plus basis including reasonable
availability. Any shortfalls
should be met through e-
auction supplies or imports.  Another option could be to price
gas on a net-back basis. If gas
• Pithead price of coal under
becomes a key component in
FSTAs should be revised
India’s energy mix, it is pointed
annually by a coal regulator
out that beyond the level of gas
on a basis that inter-alia takes
consumption in the fertiliser,
into account prices obtained
petrochemical, automotive and
through e-auction, FOB price
domestic sectors, gas must compete
of imported coal (both
with coal as the key alternative for
adjusted for quality) and
power generation. This implies that
production cost, inclusive of
the cost of generating peak or base
return based on efficiency
electricity using gas cannot exceed
the cost of peak or base electricity
• Coal prices may be made from coal, the cheapest alternative.
fully variable based on Gross A competitive coal market is thus

Integrated Energy Policy

important for setting a proper price applied consistently or not being

of natural gas on a net-back basis. adhered to.
An alternative for a gas producers (vii) Energy Efficiency and Demand Side
is to export gas, in which case the Management: Lowering the energy
domestic gas price could be the net intensity of GDP growth through
realisation of the domestic natural higher energy efficiency is important
gas producer after investing and for meeting India’s energy challenge
getting a return on the investment and ensuring its energy security. The
needed to make the natural gas energy intensity of India’s growth has
tradable across borders in either a been falling and is about half of what
trans-border pipeline or through it used to be in the early seventies.
liquefaction and shipping facilities. Currently, we consume 0.16 kg of oil
For the foreseeable future, domestic equivalent (kgoe) per dollar of GDP
gas supplies to both the fertiliser expressed in purchasing power parity
and the power sector, that together terms. India’s energy intensity is lower
account for about 80% of the than the 0.23 kgoe of China, 0.22 kgoe
current gas usage, would need to of the US and a World average of 0.21
be allocated based on availability kgoe. India’s energy intensity is even
and charged at regulated price that marginally lower than that of Germany
reflects cost of production and a & OECD at 0.17 kgoe. However,
reasonable profit. Denmark at 0.13 kgoe, UK at 0.14
 Central and State taxes on kgoe and Brazil & Japan at 0.15 kgoe
commercial energy supplies need are ahead of India. These figures and
to be rationalised to yield optimal many sectoral studies confirm that there
fuel choices and investment is room to improve and energy
decisions. Relative prices of fuels intensity can be brought down
can be distorted if taxes and significantly in India with current
subsidies are not equivalent across commercially available technologies.
fuels. This equivalence should be Lowering energy intensity through
in effective calorie terms. In other higher efficiency is equivalent to
words they should be such that creating a virtual source of untapped
producer and consumer choices as domestic energy. It may be noted that
to which fuel and which technology a unit of energy saved by a user is
to use are not affected by the taxes greater than a unit produced, as it saves
and subsidies. Socio-economic on production losses as well as
benefits such as employment transport, transmission and distribution
generation and positive impact on losses. Thus a “Negawatt”, produced
energy security may support by a reduction of energy need has
differential taxes on alternate fuels. more value than a Megawatt generated.
 Environmental taxes and subsidies, The Committee feels that with an
however, are levied precisely to aggressive pursuit of energy efficiency
affect choices. Differential taxes can and conservation, it is possible to reduce
be justified here if they India’s energy intensity by up to 25%
appropriately reflect environmental from current levels.
externalities. A consistent Efficiency can be increased in energy
application of the “polluter pays” extraction, conversion, transportation,
principle or “consumer-pays” as well as in consumption. Further, the
principle should be made to attain same level of output or service can be
environmental objectives at least- obtained by alternate means requiring
cost where prescribed less energy. The major areas where
environmental norms are either not


efficiency in energy use can make a • Establish benchmarks of

substantial impact are mining, energy consumption for all
electricity generation, electricity energy intensive sectors.
transmission, electricity distribution, • Disseminate information,
water pumping, industrial production support training and reward
processes, haulage, mass transport, best practices with national
building design, construction, heating, level honours in energy
ventilation, air conditioning, lighting efficiency and energy
and household appliances. As the Indian conservation.
economy opens up to international
 Increase the gross efficiency in
competition, it will have to become
power generation from the current
more energy efficient. This is well
average of 30.5% to 34%. All new
demonstrated by India’s steel and
plants should adopt technologies
cement industry. However, the
that improve their gross efficiency
Committee recommends the following
from the prevailing 36% to at least
policies for raising energy efficiency.
Some of these policies can be
implemented through voluntary targets  Require a least-cost planning
undertaken by industry associations as approach to provide a level playing
opposed to external dictates and field, to Negawatts and Megawatts
enforcement. so that regulators permit the same
return on the investment needed
 Merge Petroleum Conservation
to save a watt as to supply an
Research Association (PCRA) with
additional watt.
Bureau of Energy Efficiency (BEE).
The merged entity should be an  Promote minimum life cycle cost
autonomous statutory body under purchase instead of minimum initial
the Energy Conservation Act, be cost procurement by the
independent of all the energy government and the public sector.
ministries and be funded by the  Promote urban mass transport,
Central Government. It must: energy efficient vehicles and freight
• Force the pace of movement by railways through
improvement in energy scheduled freight trains with
efficiency of energy using guaranteed, safe and timely
appliances, equipment and deliveries. Enforce minimum fuel
vehicles, and create “golden efficiency standards for all vehicles.
carrot” incentives in the form  Institute specialisations in energy
of substantial rewards to the efficiency/conservation in technical
firm which first colleges and commence certification
commercialises equipment of such experts.
that exceeds a prescribed (viii) Augmenting of Resources for
energy efficiency target. Increased Energy Security: India’s
• Enforce truthful labelling on energy resources can be augmented by
equipment, and impose major exploration to find more coal, oil and
financial penalties if the gas, or by recovering a higher
equipment fails to deliver percentage of the in-place reserves.
stated efficiencies. In extreme Developing the thorium cycle for
cases, resort to black listing nuclear power and exploiting non-
of errant suppliers on conventional energy, especially solar
consumer information web power, offer possibilities for India’s
sites and in government energy independence beyond 2050.

Integrated Energy Policy

At a growth rate of 5% in domestic in the primary energy mix comes out

production, currently extractable coal lower because of the way oil
resources will be exhausted in about 45 equivalence of hydro electricity is
years. However, only about 45% of calculated. A hydroelectric plant
the potential coal bearing area has converts a unit of primary energy in
currently been covered by regional the form of potential energy to almost
surveys. It is also felt that both regional one unit of electricity. The fossil fuel
as well as detailed drilling can be made route or the nuclear route needs almost
more comprehensive. Several possible 3 units of a primary energy source to
options are recommended: produce the same unit of electricity.
 Covering all coal bearing areas with Thus while hydro’s share in primary
comprehensive regional and detailed energy mix is lower than that of
drilling could make a significant nuclear, the kWh produced from hydro
difference to the estimated life of is higher. Similarly, even if a 20-fold
India’s coal reserves. increase takes place in India’s nuclear
power capacity by 2031-32, the
 India’s extractable coal resources
contribution of nuclear energy to
could be augmented through in-
India’s energy mix is also, at best,
situ coal gasification which makes
expected to be 4.0-6.4%. If the recent
use of those coal deposits which
agreement with the US translates into
are at greater depth and cannot be
a removal of sanctions by the nuclear
extracted economically by
suppliers’ group, possibilities of imports
conventional methods.
of nuclear fuels as well as power plants
 Extracting coal bed methane before should be actively considered so that
and during mining could augment nuclear development takes place at a
the country’s energy resources. faster pace.
 Enhanced oil recovery and Nuclear energy theoretically offers
incremental oil recovery India the most potent means to long-
technologies could improve the term energy security. India has to
proportion of in-place reserves that succeed in realising the three-stage
could be economically recovered development process described in the
from abandoned/depleted fields. main report and thereby tap its vast
 Isolated deposits of all hydro thorium resource to become truly
carbons including coal may be energy independent beyond 2050.
tapped economically through sub Continuing support to the three-stage
leases to the private sector. development of India’s nuclear potential
(ix) Using Energy Abroad: In case India is essential.
can access cheap natural gas overseas Though its contribution to energy
under long-term (25-30 years) requirement is limited, hydro
arrangements, it should consider setting electricity’s flexibility and suitability
up captive fertiliser and/or gas to meet peak demand makes it valuable.
liquefaction facilities in such countries. Moreover, the development of
This would essentially augment energy hydropower, especially storage schemes,
availability for India. are critical for India as our per capita
(x) Role of Nuclear and Hydro Power: water storage is the lowest among other
Even if India succeeds in exploiting its comparable countries. Creating such
full hydro potential of 1,50,000 MW, storages is critical to India’s water
the contribution of hydro energy to security, flood control and drought
the energy mix will only be around control. The environmental concerns
1.9-2.2%. It is clarified that hydro share and the problem of resettlement and
rehabilitation of project affected people


(PAPs) can and must be satisfactorily Even when a capital subsidy is

handled. The PAPs should benefit from needed, it should be linked to
the project as much as other outcomes. For example, capital
beneficiaries. This can be accomplished, subsidy could also be given in the
for example, as follows: form of a Tradable Tax Rebate
 Require compulsory land Certificate (TTRC) that could be
consolidation and impose a based on actual energy generated.
betterment levy in kind of (say) 5 The rebate claim would become
percent of land on the command payable depending upon the
area farmers. Use this land to amount of electricity/energy
resettle and compensate all PAPs. certified as having been actually
(xi) Role of Renewables: From a longer-
term perspective and keeping in mind  Power Regulators must create
the need to maximally develop domestic alternative incentive structures such
supply options as well as the need to as mandated feed-in-laws or
diversify energy sources, renewables differential tariffs to encourage
remain important to India’s energy utilities to integrate wind, small
sector. It would not be out of place to hydro, cogeneration etc. into their
mention that solar power could be an systems.
important player in India attaining  An annual renewable energy report
energy independence in the long run. should be published providing
With a concerted push and a 40-fold details of actual performance of
increase in their contribution to different renewable technologies at
primary energy, renewables may the state and national levels. This
account for only 5 to 6% of India’s should include actual energy
energy mix by 2031-32. While this supplied from different renewable
figure appears small, the distributed options, availability, actual costs,
nature of renewables can provide many operating and maintenance
socio-economic benefits. problems etc. It should also report
Subsidies for renewables may be on social benefits, employment
justified on several grounds. A created, and women’s participation
renewable energy source may be and empowerment.
environmentally friendly. It may be  Policies for promoting specific
locally available thereby making it alternatives are suggested in the
possible to supply energy earlier than main text. These include fuel wood
in a centralised system. Grid connected plantations, bio-gas plants, wood
renewables could improve the quality gasifier based power plants, solar
of supply and provide system benefits thermal, solar water heaters, solar
by generating energy at the ends of the photovoltaics, bio-diesel and
grid where otherwise supply would ethanol.
have been lax. Further, renewables may  It is also recommended that the
provide employment and livelihood to Indian Renewable Energy
the poor. However, the subsidies should Development Agency Ltd (IREDA)
be given for a well-defined period or be converted into a national
upto a well-defined limit. refinancing institution on the lines
 The Committee recommends that of NABARD/National Housing
for promoting renewables, Bank (NHB) for the renewable
incentives should be linked to energy sector. IREDA’s own equity
outcomes (energy generated) and base can be expanded by the
not just outlays (capacity installed). financial institutions of the country

Integrated Energy Policy

instead of continuing the current increase in energy price. Even when

system of GOI support. the country has adequate energy
(xii) Ensuring Energy Security: India’s resources, technical failures may disrupt
energy security, at its broadest level, is the supply of energy to some people.
primarily about ensuring the Generators could fail, transmission lines
continuous availability of commercial may trip or oil pipelines may spring a
energy at competitive prices to support leak. One needs to provide security
its economic growth and meet the against such technical risks. Risks can
lifeline energy needs of its households be reduced by lowering the requirement
with safe, clean and convenient forms of energy by increasing efficiency in
of energy even if that entails directed production and use; by substituting
subsidies. Reducing energy imported fuels with domestic fuels; by
requirements and increasing efficiency diversifying fuel choices (gas, ethanol,
are two very important measures to orimulsion tar sands etc.) and supply
increase energy security. However, it sources; and by expanding the domestic
is also necessary to recognise that India’s energy resource base. Risks can also be
growing dependence on energy imports dealt with by increasing the ability to
exposes its energy needs to external withstand supply shocks through
price shocks. Hence, domestic energy creation of strategic reserves, the ability
resources must be expanded. For India to import energy and face market risk
it is not a question of choosing among by building hard currency reserves and
alternate domestic energy resources but by providing redundancy to address
exploiting all available domestic energy technical risks. We recommend as
resources to the maximum as long as follows:
they are competitive.  Maintain a reserve, equivalent to
The Committee, however, felt that 90 days of oil imports for strategic-
obtaining equity oil, coal and gas abroad cum-buffer stock purposes and/or
do not represent adequate strategies for buy options for emergency supplies
enhancing energy security beyond from neighbouring large storages
diversifying supply sources. In contrast, such as those available in Singapore.
pipelines for importing gas do enhance The buffer stocks could be used to
security of supply if the supplying address short-term price volatility.
country makes a major investment in Operating the strategic/buffer
the pipeline. The most critical elements reserves in cooperation with other
of our energy security, however, remain countries who maintain such
the measures suggested herein to reserves could also increase their
increase efficiency, reduce requirements effectiveness.
and augment the domestic energy  Since 80 percent of global
resource base. hydrocarbon reserves are controlled
Ensuring energy security requires by national oil companies
dealing with various risks. The threat controlled by respective
to energy security arises not just from governments, oil diplomacy
supply risks and the uncertainty of establishing bilateral economic,
availability of imported energy, but social and cultural ties can reduce
also from possible disruptions or supply risk.
shortfalls in domestic production. (xiii) Boosting Energy Related R&D: India
Supply risks from domestic sources, will find it increasingly harder to
such as from a strike in CIL or the import its required quantities of
Railways, also need to be addressed. commercial energy as her share of the
Even if there is no disruption of supply, incremental world supply of fossil fuels
there can be the market risk of a sudden could rise from a low of 13% in the


most energy efficient scenario to a high as of today provides less than 3

of 21% in the coal dominant scenario percent of our total electrical energy
by 2031-32. This assumes that the supply, is miniscule compared to
world’s supply of fossil fuels grows by what industry and governments
only 2% per annum till 2031-32. spend in developed countries. In
Research and Development (R&D) in the latter, firms generally spend
the energy sector is critical to augment more than 2 percent of their
our energy resources, to meet our long- turnover for R&D. The total
term energy needs and to promote expenditure on R&D in 2004-05
energy efficiency. Such R&D would was Rs.610 crores* for Atomic
go a long way in raising our energy Energy and Rs.70 crores for
security and delivering energy Ministry of Power, Coal and Non-
independence over the long-term. R&D Conventional Energy Sources. Even
requires sustained and continued at one-tenth of the rate at which
support over a long period of time. firms in developed countries spend
Energy related R&D has not been on R&D, i.e. 0.2% of the turnover
allotted the resources that it needs. of all energy firms whose turnover
India needs to substantially augment exceeds Rs.100 crores a year, we
the resources made available for energy end up with Rs.1000 to Rs.1200
related R&D and to allocate these crores per year which will increase
strategically. To take an innovative idea overtime. We should be spending
to its commercial application involves much more than this on R&D.
many steps. Basic research leading to a Much of R&D can be considered a
fundamental breakthrough may open public good. It is thus better
up possibilities of applications. R&D is financed by the Government.
needed to develop conceptual Initially an allocation of Rs.1000
breakthroughs and prove their crores should be made for energy
feasibility. This needs to be followed R&D excluding atomic energy. To
up by a working, laboratory scale begin with, individuals, academic
model. Projects that shows economic research institutions, consulting
potential could then be scaled up as firms, private and public sector
pilot projects, while keeping in mind enterprise, should all compete for
cost reductions that could be achieved this fund. Firms may also be
through better engineering and mass encouraged to enhance their
production. Demonstrations of such expenditure on R&D through tax
projects, economic assessments and incentives.
further R&D to make the new • The resources devoted to
technology acceptable and attractive to research in different areas
customers could follow, before finally depend on the economic
leading to commercialisation and importance of that particular
diffusion. Some key policy initiatives area, the availability of
relevant to energy related R&D are technology and the likelihood
detailed below: of success. The latter changes
 A National Energy Fund (NEF) with time as new
should be set-up to finance energy developments in science and
R&D. Our expenditure on R&D technology take place and
excepting for atomic energy, which uncertainties reduce. R&D

* Only about 15% of this amount or about Rs.90 crores, was for R&D on nuclear power. The rest of the
expenditure is for R&D on non-electricity applications of Radiation Technology and Fundamental

Integrated Energy Policy

priorities have to be based hybrid cars, super batteries,

on a dynamic strategic vision nuclear technologies related
which is frequently updated. to thorium and fusion, gas
Of critical importance is hydrates, and hydrogen
research and analysis for the production, storage, transport
energy policy to outline and distribution.
technology road maps. The • The NEF could provide
NEF should encourage and R&D funding in support of
fund such studies on a regular applications, innovative new
basis in a number of ideas, fundamental research
institutions and should also etc. to researchers in different
commission them from institutions, universities,
experienced and qualified organisations and even
individuals. individuals working
• The NEF should support independently.
energy policy modelling • A number of academic
activities in a number of institutions should be
institutions on a long-term developed as centres of
basis. The different modellers excellence in energy research.
should be brought together
(xiv) Household Energy Security -
periodically in a forum to
Electricity and Clean Fuels for All:
address specific policy issues.
One of the toughest challenges is to
• A number of technology provide electricity and clean fuels to
missions should be mounted all, particularly rural populations given
for developing near- their poor paying capacity, the limited
commercial technologies and availability of local resources for clean
rolling out new technologies cooking energy, and the size of the
in a time bound manner. country and its population. The
These include coal considerable effort spent on gathering
technologies (where India biomass and cow-dung and then
should focus) for efficiency preparing them for use is not priced
improvement; in-situ into the cost of such energy. These
gasification; IGCC and fuels create smoke and indoor air
carbon sequestration; solar pollution, are inconvenient to use, and
technologies covering solar- adversely affect the health of people,
thermal and photovoltaics; particularly women and children. Yet,
bio-fuels such as bio-diesel given the fact that women and girls
and ethanol; bio-mass carry most of the burden of the
plantation and wood drudgery and also bear the brunt of
gasification, and community indoor air pollution, the urgency to
based bio-gas plants. meet the challenge should be high.
• Coordinated research and Such steps are needed for our broader
development in all stages of need to achieve universal primary
the innovation chain to reach education for girls, promote gender
a targeted goal (such as that equality and empower women. Easy
in place in the departments availability of a certain amount of clean
of atomic energy and space energy that is required to maintain life
research) should be used to should be considered as a basic
develop more efficient necessity. Energy security at the
industrial plant, machinery & individual level implies ensuring supply
processes, efficient appliances, of such a lifeline energy need. India


cannot be energy secure if her people the poverty line may not seek such
remain without secure supply of energy connectivity on their own.
for lifeline needs. Ensuring this would To make RGGVY sustainable, a
require targeted subsidies as many business plan with a viable revenue
households would be unable to pay for model needs to be elaborated. A clear
safe, clean and convenient commercial pricing and subsidy policy and the
energy to meet lifeline needs. This means of targeting the subsidy need to
requires: be announced soon. Local bodies,
 Electrification of All Households: The panchayati raj institutions, NGOs or
government has announced its even local entrepreneurs can take the
commitment to ensure this by 2009- franchise to run the local network.
10. Women’s self-help groups can also be
 Provision of Cooking Energy: We empowered to do so.
may set a goal to provide clean The consumer pays about 40% of the
cooking energy such as LPG, NG, import parity price for kerosene sold
biogas or kerosene to all within 10 through the Public Distribution System
years. It may be noted that the (PDS). The balance 60% of the price is
requirement of cooking energy does being funded largely by oil sector PSUs
not increase indefinitely with and to a small extent by the
income. Thus the total amount of Government through the budget.
LPG required to provide cooking However, subsidies do not reach the
energy to 1.5 billion persons is intended beneficiaries due to poor
around 55 Mtoe. targeting. The real issue is to improve
 Other Sources: We may provide fuel targeting within the subsidy programme
wood plantations within one well and ensure that those falling
kilometre of all habitations. Those outside the subsidy net pay the full
who do not have access or cannot cost of supply. Additionally, a well-
afford even subsidised clean fuels, targeted subsidy regime may only
rely on gathering wood. marginally raise the current subsidy
Neighbourhood plantations can burden.
ease their burden and the time  The best way for providing subsidy
taken to gather and transport wood. for electricity and cleaner fuels,
The Rajiv Gandhi Grameen kerosene or LPG, is to entitle
Vidyutikaran Yojana (RGGVY) was targeted households to 30 units of
launched to achieve electrification of electricity per month and LPG,
all households. By 2009-2010 the kerosene or bio-gas purchased from
RGGVY aims to electrify the 1,25,000 a local community size plant
villages, still without electricity; to equivalent to 6 kg of LPG per
connect all the estimated 2.34 crore un- month. A system of debit cards
electrified households below the may be introduced to deliver such
poverty line with a 90% subsidy on a subsidy. The entitlements can
connecting costs; and finally, to only be used for purchase of these
augment the backbone network in all products. With modern ICT, debit
the electrified 4.62 lakh villages. The card readers operated on battery
5.46 crore households above the and feeding data using mobile
poverty line which are currently technology, can work in rural areas
unelectrified, are expected to get of the country as well.
electricity connection on their own In addition to the above subsidy, other
without any subsidy. Going by current actions are also needed that create
experience, all these households above energy secure villages. We suggest:

Integrated Energy Policy

 Finance a large scale socio-economic searching and gathering fuel wood

experiment to operate community today.
sized bio-gas plants as a commercial  For setting up of off-grid generation
enterprise either by a community facilities in rural areas, encourage
cooperative or by a commercial the organised sector to adopt rural
entrepreneur. Bio-gas plants on this community/communities in their
scale could meet the need for clean areas of operation.
cooking energy of a sizable segment
(xv) An Enabling Environment for
of the rural population.
Competitive Efficiency: Apart from
 Even with subsidies for clean fuel, pricing policies, an environment that
it may not be easy to reach clean allows multiple players in each element
fuels to the poor and they may of the energy value chain to compete
continue to use fuelwood. As part on transparent and equal terms is
of the above programme, improve essential to realising efficiency gains
the efficiency of domestic chullahs within the energy sector. Currently
and lanterns from the prevailing the sector is dominated by large Public
10-12% to 20-25%, which is easily Sector Companies and some sub-sectors
attainable and couple this to have natural monopoly characteristics
improving ventilation in the potentially offering economies of scale.
cooking area of the dwellings. The Given this ground reality, independent
surplus biomass released as a result & informed regulation becomes
of better efficiency could be used essential to realising competitive
in gasifiers for generating electricity. efficiency. Such regulation can play an
 Generate electricity through wood important role to see that competitive
gasifiers or by burning surplus bio- markets develop and mature. Such
gas from the community bio-gas regulation must in the very least ensure
plants. Such distributed generators that:
may be able to take electricity to  The regulatory responsibility/
villages sooner than the grid. This functions of the State are separated
will encourage local generation and from the Ministries that control
could conceivably feed the grid the Public Sector Units dominating
with surplus power at an agreed the energy sector; and
feed in tariff at a future date.
 Till effective competitive markets
Formulate a tariff policy for such
emerge, independent regulators
distributed generation for both
should fix prices or price caps to
household and productive use
mimic competitive markets based
including agriculture.
on principles summarised in para
 To reduce drudgery of those who (v) above. Even when competitive
still need to gather fuel, develop markets emerge, the regulators’ role
woodlots within one kilometre of will continue to remain important.
the village. Provide finance through
(xvi) Climate Change Concerns: Concern
self-help groups to transform
vis-a-vis the threat of climate change
women, who, today are only
has been an important issue in
energy gatherers, into micro-
formulating the energy policy. Even
entrepreneurs engaged in rural
though India is not required to contain
energy markets and energy
its GHG emissions, as a signatory to
management. Women’s groups can
the UN Framework Convention on
form co-operatives for developing
Climate Change and a country which
and managing fuel wood or oil
has acceded to the Kyoto Protocol,
seed plantations with the same
India has been very active in proposing
effort that they put towards


Clean Development Mechanism (CDM) - Technology Missions for clean coal

projects. By May 2006, a total of 297 technologies
projects had been approved by India - Focussed R&D on many climate
with approximately 240 million tonnes friendly technologies
of CO2 reduction. Also, since the
impact on the country’s poor, due to
climate change, could be serious, this The broad policy framework and the
report has suggested a number of thrust of development suggested here need to
initiatives that will reduce the green be made more specific. To this end once the
house gas intensity of the economy by policy framework is accepted, detailed roadmaps
as much as one third. These are: of development should be chalked out and
specific policy measures for implementation
- Energy efficiency in all sectors
- Emphasis on mass transport
- Active policy on renewable energy With the recommendations of the
including bio-fuels and fuel Committee, India can meet her energy
plantations requirements in an efficient, cost effective way
- Accelerated development of nuclear and be on a path of sustainable energy security.
and hydro-electricity

Integrated Energy Policy

Abbreviations Used

Abbreviations Used
A ABT-Availability Based Tariff CNG-Compressed Natural Gas
APDRP-Accelerated Power CBM-Coal Bed Methane
Development and Reform Programme CONCOR-Container Corporation of
AT&C-Aggregate Technical and India Ltd.
Commercial CHP-Combined Heat & Power
APM-Administered Price Mechanism CIS-Common wealth of Independent
ADB-Asian Development Bank States
ATF-Aviation Turbine Fuel CMPDIL-Central Mine Planning &
APEC-Asia Pacific Economic Design Institute Ltd.
Cooperation CLASP-Collaborative Labelling and
ALCC-Annualised Life Cycle Cost Appliance Standards Programme
AMR-Automatic Meter Reading CSIR-Council for Scientific and
Industrial Research
CERC-Central Electricity Regulatory
B BEE-Bureau of Energy Efficiency
BPL-Below Poverty Line
CEA-Central Electricity Authority
BCS-Best Case Scenario
CO-Carbon Monoxide
BAU-Business as Usual
CH4-Methane Gas
BCM-Billion Cubic Meters
CER-Certified Emission Reduction
BARC-Bhaba Atomic Research Centre
BESCOM-Bangalore Electricity Supply
D DAE-Department of Atomic Energy
Company Ltd.
DGH-Directorate General of
BP-British petroleum
BCCL-Bharat Cocking Coal Limited
DSM-Demand Side Management
DSCL-DCM Sriram Consolidated Ltd
C CAGR-Compounded Annual Growth
DTI-Department of Trade & Industry,
CASE-Commission for Additional
DG-Distributed Generation
Sources of Energy
DST-Department of Science &
CIL-Coal India Limited
CIF-Cost Insurance and Freight
DME-Dimethyl Ether
CDM-Clean Development Mechanism
DBT-Department of Bio Technology
CO2-Carbon dioxide
CEA-Central Electricity Authority
E EMPs-Environment Management Plans
CMIE-Centre for Monitoring Indian
ECL-Eastern Coal Fields Limited
EIA-Energy Information

Overview Integrated Energy Policy

Administration ICT-Information and Communication

EOR-Enhanced Oil Recovery Technologies
EIL-Engineers India Limited IEA-International Energy Agency
EE-Energy Efficiency IRADe-Integrated Research and Action
for Development.
EC Act-Energy Conservation Act.
IHV-India Hydrocarbon Vision 2025
ESCOs-Energy Service Companies
IOC-Indian Oil Corporation
IC-Internal Combustion
F FFA- Free Fatty Acids
IOR-Improved Oil Recovery
FSA-Fuel Supply Agreements
IPP-Independent Power Producers
FOB-Free on Board
ICCEPT-Imperial College Centre for
FSTA-Fuel Supply and Transport
Energy Policy and Technology
FDI-Foreign Direct Investment
K KG-Krishna Godavari
FBRs-Fast Breeder Reactors
FBTR-Fast Breeder Test Reactor
L LPG-Liquefied Petroleum Gas
FO-Fuel Oil
LNG-Liquefied Natural Gas
FSI-Floor Space Index
LWRs-Light Water Reactors
LDO-Light Diesel Oil
G GAIL-GAIL (India) Limited
LSHS-Low Sulphur Heavy Stock
GIS-Geographical Information System
GOI-Government of India
M MSW-Municipal Solid Waste
GCV-Gross Calorific Value
MECL-Mineral Exploration
GDP-Gross Domestic Product
Corporation Limited
GHG-Green House Gases
MIS-Management Information System
GSPC-Gujarat State Petroleum
MS-Motor Spirit
MOPNG-Ministry of Petroleum and
GEF-Global Environment Facility
Natural Gas
GTL-Gas to Liquids
MOP-Ministry of Power
GSI-Geological Survey of India
MNES-Ministry of Non-Conventional
Energy Sources
H HDI-Human Development Index MSP-Minimum Support Price
HOG-High Output Growth N NHB-National Housing Bank
HSDO-High Speed Diesel Oil NABARD-National Bank for
HVDC-High Voltage Direct Current Agriculture and Rural Development
NDC-National Development Council
I ICRISAT-International Crops Research NEF-National Energy Fund
Institute for the Semi-Arid Tropics NG-Natural Gas
IREDA-Indian Renewable Energy NGOs-Non-Governmental
Development Agency Ltd. Organisations
IGCC-Integrated Gasification NSS-National Sample Survey
Combined Cycle.

Abbreviations Used

NSSO-National Sample Survey RCs-Regulatory Commissions

Organisation REGA-Rural Employment Guarantee
NCDMA-National Clean Development Act.
Mechanism Authority
NLC-Neyveli Lignite Corporation S SEBs-State Electricity Boards
NCDC-National Coal Development SPM-Suspended Particulate Matter
S & T-Science and Technology
NEEPCO-North Eastern Electric
SPR-Strategic Petroleum Reserve
Power Corporation Limited
SPSUs-State Power Sector Utilities
NHPC-National Hydro Electric Power
Corporation Sox-Sulphur Oxides
NSG-Nuclear Suppliers Group SHGs-Self-Help Groups
NELP-New Exploration Licensing SWH-Solar Water Heater
Policy SERC-State Electricity Regulatory
O OECD-Organisation for Economic Co- SO2 – Sulphur Oxide
operation and Development
ONGC-Oil and Natural Gas T TIFAC-Technology Information,
Corporation Forecasting & Assessment Council
ORF-Observer Research Foundation TTRC-Tradable Tax Rebate Certificates
OIL-Oil India Limited TPES-Total Primary Energy Supply
OMCs-Oil Marketing Companies TPCES-Total Primary Commercial
Energy Supply
P PSUs-Public Sector Undertakings TERI-The Energy and Resources
PDS-Public Distribution System
TPNCES-Total Primary Non-
PCRA-Petroleum Conservation
Commercial Energy Supply.
Research Association
T & D-Transmission and Distribution
PAP-Project Affected People.
TOD-Time of Day
PPP-Purchasing Power Parity
TPA-Tripartite Agreement
PLF-Plant Load Factor
PWC-Price Waterhouse Coopers
U UNFCC-United Nations Framework
Convention on Climate Change
Corporation of India Limited
UK-United Kingdom
PHWRs-Pressurised Heavy Water
Reactors UNDP-United Nations Development
PFBR-Prototype Fast Breeder Reactor
UAE-United Arab Emirates
UP-Uttar Pradesh
R RSPM-Respiratory Suspended
Particulate Matter USA-United States of America
R & D-Research and Development UHV-Useful Heat Value
RGGVY-Rajiv Gandhi Grameen
Vidyutikaran Yojana V VOCs-Volatile Organic Compounds
ROR-Run of the River

The Challenges
Chapter I

The Challenges
India faces formidable challenges in becomes clear when we look at the energy
meeting its energy needs and providing adequate scene in the country today. This chapter lays
and varied energy of desired quality to users in out the contemporary energy scene,
a sustainable manner and at reasonable costs. highlighting issues of concern, and then makes
India needs economic growth for human the case for an Integrated Energy Policies to
development, which in turn requires access to address these.
clean, convenient and reliable energy for all.
As we near the 8-10% growth rate that we 1.1 THE ENERGY SCENE
aspire for, the quantity & quality of energy we
need, will increase substantially. Thus the 2. Per capita consumption of energy in
energy challenge is of fundamental importance. India is one of the lowest in the world. India
The nature and dimension of this challenge consumed 439 kg of oil equivalent (kgoe) per
Table 1.1
Selected Energy Indicators for 2003
Region/Country GDP Per TPES TPES/GDP Electricity kWh/
Capita-PPP Per Capita (kgoe/ Consumption $-2000 PPP
(US $ 2000) (kgoe) $-2000 PPP) Per Capita
China 4838 1090 0.23 1379 0.29
Australia 28295 5630 0.20 10640 0.38
Brazil 7359 1094 0.15 1934 0.26
Denmark 29082 3852 0.13 6599 0.23
Germany 25271 4210 0.17 6898 0.27
India* 2732 439 0.16 553 0.20
Indonesia 3175 753 0.24 440 0.14
Netherlands 27124 4983 0.18 6748 0.25
Saudi Arabia 12494 5805 0.46 6481 0.52
Sweden 27869 5751 0.21 15397 0.55
United Kingdom 26944 3906 0.14 6231 0.23
United States 35487 7835 0.22 13066 0.37
Japan 26636 4052 0.15 7816 0.29
World 7868 1688 0.21 2429 0.31
TPES: Total Primary Energy Supply
*Data for India are corrected for actual consumption and the difference in actual and IEA
assumed calorie content of Indian coal
Source: IEA (2005), Key World Energy Statistics 2005, International Energy Agency, Paris,

Integrated Energy Policy

person of primary energy in 2003 compared to in India is far below that in other countries.
1090 in China, 7835 in the U.S. and the world Moreover, access to electricity is very uneven.
average of 1688. India’s energy use efficiency Even though 85 percent of villages are
for generating Gross Domestic Product (GDP) considered electrified, around 57 percent of the
in Purchasing Power Parity (PPP) terms is rural households and 12 percent of the urban
better than the world average, China, US and households i.e. 84 million households (over
Germany (see Table 1.1). However, it is 7% to 44.2% of total) in the country did not have
23% higher than Denmark, UK, Japan and electricity in 2000. Improvement in human
Brazil. Clearly, significant reduction in the development is also strongly associated with
energy intensity of growth can be achieved access to electricity. In Figure 1.3, the Human
based on existing technologies. Development Index (HDI), which is calculated
from literacy rate, infant mortality rate and
3. The level of per capita energy supply is per capita GDP (UNDP, 2004) is plotted against
a good indicator of the level of economic per capita electricity consumption.
development as seen in Figure 1.1 where per
capita energy supply is plotted against per 5. Even those who have access to
capita GDP. Figure 1.2 shows the relationship electricity suffer from shortages and poor
of per capita electricity supply with the level quality of supply. Unscheduled outages, load
of economic development. Figures 1.1 and 1.2 shedding, fluctuating voltage and erratic
are plotted on logarithmic scale and thus their frequency are common. Consumers and the
slopes indicate elasticity of per capita energy economy bear a large burden of the
supply w.r.t. per capita GDP i.e. percent change consequences of this poor quality of supply.
in per capita energy supply for every percent This is evident through many examples. Motors
change in per capita GDP. are over designed and consume more electricity
than required for the task. Voltage stabilisers
4. If we look at the consumption of are needed for expensive equipment. Diesel
electricity - one of the most convenient forms generators provide backup power to industrial
of energy - we see that per capita consumption and commercial consumers, while inverters1 to

Figure 1.1
Total Primary Energy Supply (TOE) Per Capita (2003) vs. GDP Per Capita (PPP US$2000)

Source: IEA (2005)

1 Inverters charge batteries when power is available and when power go out convert the DC power of
batteries to supply AC power.

The Challenges

Figure 1.2
Kilo Watt hours of Electricity Consumption Per Capita (2003) vs. GDP Per Capita (PPP US$2000)

Source: IEA (2005)

Figure 1.3
Human Development Index (HDI) vs. Electricity Consumption Per Capita in 2002
Human Development Indicator (HDI)

Electricity consumption per capita (kWh)

Note: HDI for India 0.595 and Electricity consumption per capita 553 kWh.
Source: United Nations Development Programme (UNDP-2004) and IEA (2004)

tide over power outages are ubiquitous in city interrupted. The extent of power shortage varies
homes. Equipment often gets damaged. Motors, from state to state. In 2004-05, the peak shortage
compressors and pumps get burnt out often. varied from 0 to 25.4% with an all-India average
Added to these is the cost of idle manpower of 11.7%. Similarly, energy shortage also varied
and loss in production when power supply is from 0 to 20.1% with an all-India average of

Integrated Energy Policy

Figure 1.4
Peak Power and Energy Shortages in States/UTs. 2004-05

Source: Central Electricity Authority (CEA), 2005

7.3% (Figure 1.4). These shortages include Shortages and the poor quality of power are
scheduled cuts, reported load shedding and the outcome of inadequate investments in
frequency corrections. However, unscheduled distribution and transmission. Increasing
outages are not included. generation capacity has attracted the bulk of
investment both at the centre and the state
6. Availability based tariffs (ABT) and levels. Aggregate Technical and Commercial
unscheduled interchange charges for power (AT&C) losses which include theft, non-billing,
introduced in 2003 for inter-state sale of power incorrect billing, inefficiency in collection, and
have reduced voltage and frequency transmission and distribution losses, exceed
fluctuations. The latter are still, however, not 40% for the country as a whole. Consequently
as stable as one would like. In all regions, the State Electricity Boards (SEBs), remain
except the Northern one, frequency was within financially sick and hence unable either to
the normal band (49.0-50.50 Hz) for more adequately meet their investment needs on
than 98% of the time in 2004-05, up from 55% their own or attract private capital to do so.
in 2000. Frequency falls when demand exceeds
available supply on the grid. 8. The Ministry of Power has set a target
of adding 1,00,000 MW of generation capacity
7. Power capacity has risen at the rate of between 2002-2012. This programme includes
5.87% per annum over the last 25 years. The the 41,110 MW capacity additions proposed in
total supply of electrical energy has risen at the the 10th Plan to ensure the availability of
rate of 7.2% per annum over the same period. reliable and quality power as well as the creation
This reflects a gradual improvement in the of an adequate reserve margin. Historically,
average Plant Load Factor (PLF) of thermal plan targets have never been met, and even in
plants (which stood at 74.8% in 2004-05) as the 10th Plan, the likely capacity addition will
well as a decline in the share of hydro in the actually be under 28,000 MW. Further, the
power generation mix. However, consumption generation capacity created does not have the
is still constrained as supply and power desired mix of peaking, intermediate and base
shortages continue to plague the country. load stations. Finally, the history of emphasis

The Challenges

on investment in power generation results in element of the electricity value chain, bring in
loading more and more power on an inadequate the needed investments and yield the necessary
transmission and distribution (T&D) network. efficiency gains through such competition.
Since T&D investments have not kept pace
with investments in generation, power cannot 10. The Accelerated Power Development
be easily moved from surplus to deficit areas. and Reforms Programme (APDRP) is aimed at
Industrial and commercial establishments have supporting distribution reforms through
been forced to seek captive and standby investments and incentives by strengthening
generation to meet demand or provide quality sub-transmission and distribution networks in
supply on a 24X7 basis to support critical the states so as to reduce the aggregate AT&C
processes and provide peaking support. There loss levels and encourage efficiency
is good reason to believe that some 50,000 improvements in metering, billing and
MW of such captive and standby capacity is in collection. The performance of the APDRP,
place. Those in the household sector who can thus far, has fallen short of the promise with
afford it manage with the help of inverters. an investment of only Rs.9,200 crore realised
in the first three years against a target of
9. The sector is dominated by large state Rs.20,000 crores for the 5 years of the 10th
monopolies at both central and state levels. Plan. The programme has to be restructured to
Over 88% of utility-based generation is in the an outcome-driven programme based on
public sector, which also, almost entirely, monitorable targets against established baselines.
controls transmission. Private distribution is Privatisation of distribution has also been tried
limited to Orissa, Delhi and some parts of in Orissa and Delhi as an alternative but the
West Bengal, Maharashtra, Gujarat and U.P. results are, at best, mixed.
An uneven playing field permeates the market
place wherein the Central Power Sector PSUs 11. Power tariffs are structured on the basis
get guaranteed post-tax returns of 14-16% with of industrial and commercial users cross-
full payment backed by the GOI. State Power subsidising agricultural and domestic power
Sector Utilities (SPSUs) are given zero or low consumption. The agricultural sector is supplied
returns by Regulators who are under constant un-metered power in almost all states and the
pressure not to raise tariffs, which are already farmers pay a highly subsidised lump sum
among the highest in the world in PPP terms based on the declared horse power of their
for industrial, commercial and household pumps. This leads to a zero marginal cost of
consumers. For example, in 2002, industries in power which promotes, inefficient use and
India paid 47 US cents per unit as opposed to over exploitation of ground water. The
20 cents in China, 17 cents in Brazil, 12 cents domestic sector also has a range of subsidies
in Japan, 5.5 cents in US and 5 cents in based on the level of consumption including
Germany in terms of PPP. Financially sick heavily subsidised power for the poorest
state sector utilities are unable to invest on segment wherein households pay a low lump
their own and remain a poor credit risk for sum monthly charge. With the rising cost of
private suppliers of energy. This reality has led supply, the burden of these cross-subsidies has
to a growth driven by Central Power Sector increased and is disproportionately loaded on
PSUs, which is clearly unsustainable in the the paying industrial, commercial and large
long run since their only customer is bankrupt. household consumers. Additionally, the tariff
Even the massive investments required in structure has created incentives for high paying
distribution are unlikely to yield adequate consumers to pilfer power under the cover
returns in the current set-up. Nevertheless, provided by unmetered power. The habit of
such investments to strengthen distribution stealing power is now widespread. A vested
system, irrespective of public or private interest lobby has been created and what are
ownership must be made. The GOI and the euphemistically called AT&C losses remain
Regulators have to struggle to put an enabling stubbornly high. While some state governments
environment and a regulatory framework in partially compensate the SEBs for subsidies
place that will nurture competition in each given to farmers and other specified consumers,

Integrated Energy Policy

AT&C losses have to be borne by SEBs. Even and only 2.7% of rural households. Other
if such practices could have been justified in primary sources of cooking energy used by
the formative years of these companies, urban and rural households include coke,
necessary corrective measures should have been charcoal, gobar gas (cow dung gas), electricity
taken on the basis of the experience gathered and other fuels.
over subsequent years of operation. The
development of an effective way to subsidise 13. Figure 1.5 shows that not much change
farmers and certain other consumption has taken place in rural areas since the 50th
categories that gives them incentives to both round of NSS (1994-95) though in urban
use power efficiently and arrest pilferage, is households use of LPG has nearly doubled.
very critical for a healthy power sector. The
process of power sector reforms was started in 14. The use of traditional fuels for cooking
1992 and continues to date. Despite some with the attendant pollution and the cost of
progress, the sector has a long way to go gathering them imposes a heavy burden on
before becoming competitive and efficient at people, particularly women and girls. The need
meeting demand with quality power and being to gather fuels may deprive a young girl of her
able to attract the needed investment to keep schooling. Over time, the use of such fuels
up with growing demand on commercially increases the risks of eye infections and
viable terms. respiratory diseases. Lack of access to clean and
convenient sources of energy impact the health
12. A majority of India’s people use of women and girls disproportionately as they
traditional fuels such as dung, agricultural spend more time indoors and are primarily
wastes and firewood for cooking food. These responsible for cooking. Women’s micro-
fuels cause indoor pollution. The 1999-2000 enterprises (an important factor in household
55th round of the National Sample Survey income, as well as in women’s welfare and
(NSS) revealed that for 86% of rural households empowerment), are heat-intensive (food
the primary source of cooking energy was processing), labour-intensive, and/or light-
firewood and woodchips or dung cakes. In intensive (home industries with work in
urban areas as well, more than 20% of all evenings). The lack of adequate energy supply—
households relied mainly on firewood and and other coordinated support—affects women’s
chips. Only 5% of the households in rural abilities to use these micro-enterprises profitably
areas and 44% in urban areas used LPG. and safely. Furthermore, women often face
Kerosene was used by 22% of urban households additional barriers in making the best use of

Figure 1.5
Distribution of Households by Primary Source of EnergyUsed for Cooking- India

Source: NSSO (2001): Energy used by Indian Households 1999-2000. NSS 55th Round, Report No. 464
(55/1.0/6), National Sample Survey Organisation (NSSO), Govt. of India, August, 2001.

The Challenges

available opportunities and obtaining improved hours are spent in gathering fuel wood and
energy services. There are social and practical other traditional fuels annually.
constraints related to ownership and control
over productive resources, and women are 15. The total quantities of traditional fuels
typically excluded/marginalised from decision- used are substantial. Table 1.2 presents the data
making vis-à-vis the use of these resources. on household energy use. Biomass based fuels
This is worsened by barriers related to illiteracy, dominate particularly in rural areas, where
lack of exposure to information and training. they are used by households in all consumer
Thus, the economic burden of traditional fuels expenditure categories (see Figure 1.6). This
is around Rs.300 billion (see BOX 1.1). An implies that their use would not reduce even
energy policy that seeks to be responsive to with economic growth and rising incomes in
social welfare must address this fact. It is rural areas.
estimated that in rural North India, 30 billion

BOX 1.1
The Burden of Traditional Fuels in Rural India
A study based on an integrated survey covering 15,293 rural households from 148 villages in
three states of rural North India and one state in South India shows the importance of clean
fuels. Symptoms of diseases related to air and water pollution, expenditure on health and
person days lost, demographic and socio-economic information, measurements of air quality
in the kitchen, outside the kitchen and the home were collected. Indicators for respiratory
functions (Peak Expiratory Flow) were measured for most of the adults present at the time of
the survey. The doctors examined a sub-sample of individuals for confirmation of diseases.
The study estimated that
• 96% of households use biomass energy, 11% use kerosene and 5% use LPG for cooking.
Most of them use multiple fuels.
• Forests contribute 39% of the fuel wood need.
• 314 Mt of bio-fuels are gathered annually.
• 85 million households spend 30 billion hours annually in fuel wood gathering.
• Respiratory symptoms are prevalent among 24 million adults of which 17 million have
serious symptoms.
• 5% of adults suffer from Bronchial asthma, 16% from Bronchitis, 8.2% from Pulmonary
TB and 7% from Chest infection.
• Risk of contracting respiratory diseases and eye diseases increases with longer duration of
use of bio-fuels.
Total economic burden of dirty biomass fuel was estimated to be Rs.299 billion using a wage
rate of Rs.60 per day, comprising of opportunity cost of gathering fuel, working days lost due
to eye infections and respiratory diseases, and the cost of medicine.
As women are the primary sufferers of the adverse impact of use of biomass fuels, there is a
close linkage between gender and energy. Gender and energy issues have remained on the
periphery of energy policy, and require greater attention and backing.
Source: Parikh Jyoti et al (2005)2

2 ParikhJyoti K. et al “Lack of Energy, Water and Sanitation and its Impact on Rural India” in Parikh Kirit
S. and R. Radhakrishna (eds.), India Development Report 2004-2005, Oxford University Press, New Delhi.

Integrated Energy Policy

Table 1.2
Household Energy Consumption in India (July 1999 – June 2000)
Fuel Type Physical Units Mtoe
Rural Urban Total Rural Urban Total
Fire Wood & Chips (Mt) 158.87 18.08 176.95 71.49 8.13 79.62
Electricity (BkWh) 40.76 57.26 98.02 3.51 4.92 8.43
Dung Cake (Mt) 132.95 8.03 140.98 27.92 1.69 29.61
Kerosene (ML) 7.38 4.51 11.89 6.25 3.82 10.07
Coal (Mt) 1.20 1.54 2.74 0.49 0.63 1.12
L.P.G. (Mt) 1.25 4.43 5.68 1.41 5.00 6.41
Source: Derived from NSS 55th Round, (July 1999-June 2000) data, National Sample Survey
Organisation, Ministry of Statistics and Programme Implementation, Government of India
Figure 1.6
Pattern of Household Energy Consumption
Figure 1.6(a): Monthly Per Capita Household Consumption Pattern Urban India, 2000

Figure 1.6(b): Monthly Per Cpita Household Consumption Pattern Rural India, 2000

Source: NSS 55th Round, (July 1999-June 2000), National Sample Survey Organisation, Ministry of
Statistics and Programme Implementation, Government of India

The Challenges

16. In 2004-05, net of exports, India been marginal in enhancing oil reserves.
consumed 120.17 Mt of crude oil products However, some sizeable gas reserves amounting
including refinery fuel. Domestic production to 680 Mtoe [320 Mtoe claimed by Reliance
of crude oil has been between 30.3 Mt to 33.98 and 360 Mtoe claimed by Gujarat State
Mt during 1990-2005 (see Figure 1.7). Not only Petroleum Corporation (GSPC)] have been
has domestic production stagnated, oil reserves reported recently which is yet to be confirmed
hovered between 700 Mt and 750 Mt during by DGH. More work is needed to estimate the
this period. The total oil reserves were 739 Mt total extractable potential. Despite one of the
in 1990-91 and were estimated to be 786 Mt in most liberal exploration licensing regimes, India
2004-05. The proved reserves to production has failed to attract any oil majors to explore
(R/P) ratio was 23 in 2004-05. We now import in India. This might be an indication of the oil
72% of our consumption and our import major’s assessment of the exploration potential
dependence is growing rapidly. This raises in the Indian Sedimentary basins since typically
serious concerns about India’s energy security, such firms prefer to work in large fields. In the
our ability to obtain the oil we need and the latest round of bidding for exploration under
impact of constrained supply and the the new exploration licensing policy (NELP),
consequent increase in oil prices on our oil majors have shown interest. Given the
economy. rising preference for gas as a fuel and feedstock,
India is also seeking to significantly raise gas
17. Till 1997, oil and gas exploration was imports through LNG and Trans-National gas
mainly done by public sector firms. Progressive pipelines. Oil diplomacy is currently seen as a
liberalisation of exploration and the licensing major tool for ensuring India’s energy security
policy has attracted some private and foreign along with the acquisition of equity oil and gas
firms. The success of these explorations has from overseas.

Figure 1.7
Domestic Consumption and Production of Crude Oil

Source: Ministry of Petroleum & Natural Gas

Integrated Energy Policy

18. The total consumption of petroleum population continues to grow at higher than
products grew at the rate of 5.7% per annum historical rates. However, in the last 5 years
between 1980-81 and 2003-04. However, growth growth in consumption of petrol and diesel
in consumption has moderated to 2.95% per has been far more moderate at 6.9% and less
annum over the last four years (2000-01 to than 1% respectively. This reflects the improved
2004-05). Consumption for petrol and diesel efficiency of vehicles and better road conditions.
grew at 7.3% and 5.8% per annum respectively Table 1.3 gives the decadal growth rates of
between 1980-81 and 2004-05. This was the motor vehicles from 1970-71 to 2001-02. In
outcome of the growth of personal motorised 2004-05, liquid fuel consumption in the
transport and the rise in share of road haulage. transport sector accounted for 28% of our
The numbers of two-wheelers rose from total petroleum products consumption.
5,75,893 to 4,14,78,136, three-wheelers from
36,765 to 18,81,085, cars from 5,39,475 to 19. Currently, the refining capacity of the
57,17,456, buses from 93,907 to 5,52,899 and country is greater than the domestic
trucks from 3,43,000 to 20,88,918 between requirements, making India a net exporter of
1970-71 and 2001-02 (Figure 1.8). The vehicle petroleum products. The projected addition to
Figure 1.8
Growth of Transport Vehicles and Two Wheelers

Source: Centre for Monitoring Indian Economy Pvt. Ltd. (CMIE)

Table 1.3
Growth of Motorised Transport Vehicles
1970-71 1980-81 1990-91 2001-2002 Growth Rate
Two-wheelers 575893 2530441 14199858 41478136 15.3%
Three-wheelers 36765 142073 617365 1881085 14.0%
Cars 539475 900221 2266506 5717456 8.2%
Taxis 60446 100845 243748 684490 8.4%
Jeeps 82584 120475 443734 1168868 9.2%
Buses 93907 153909 331096 552899 6.1%
Trucks 343000 554000 1355953 2088918 6.2%
Source: Center for Monitoring Indian Economy Pvt. Ltd. (CMIE)

The Challenges

refining capacity in both the public and private parity prices. Other barriers to private sector’s
sectors will far exceed addition in demand and entry into retailing include a minimum
petroleum products could, therefore, become investment hurdle of Rs.2000 crore and the
India’s largest export. India’s marginal advantage absence of a common carrier principle in the
in becoming a refining hub for exporting distribution and marketing sectors. Another
products is not immediately clear. feature of the distorted market is the large-
scale adulteration of petrol and diesel with
20. The oil sector remains largely in the subsidised kerosene.
hands of the central Public Sector Undertakings
(PSUs). The exception is refining wherein some 22. The challenges facing the petroleum
26% of capacity is now in private hands. Before and natural gas sectors include: (a) ensuring
2002, oil product prices were set by the crude oil and gas supplies in a constrained
government under an Administered Price world market amidst rising prices; (b) demand
Mechanism (APM), which is no longer in use. management of petroleum products; (c) rational
The prices of inputs and the products are now pricing of petroleum products and natural gas;
determined on the basis of the import parity (d) removal of entry barriers for private players
principle even for products wherein India is a in distribution and retail business in order to
net exporter. However, since prices are fixed create real market competition; (e) regulation
collectively by the public sector oil companies, of upstream and downstream sectors; (f)
there is no price competition at the refinery improving the administration of LPG and
gate or retail outlets. The Government of India, kerosene subsidies and, finally (g) environmental
through the Ministry of Petroleum and Natural management through product upgradation.
Gas, has frequently deviated from the import
parity principle in fixing the effective price of 23. Coal has been the mainstay of India’s
domestic crude as well as the price of petroleum energy supply for many years. Coal
products at the retail level. Currently, there is consumption increased from 140 Mt in 1984 to
no independent regulation of the upstream or over 400 Mt in 2004 with a growth rate of
downstream petroleum sector. 5.4%. Thermal power plants using coal today
account for 57% of our total generation
21. The above pricing methodology leads capacity. Indian coal has a high ash content
to multiple distortions when coupled with the and low calorific value – an average of 4000
fact that there are differential custom duties on kcal/kg compared to 6000 kcal/kg in imported
crude oil and petroleum products, differential coal. The average calorific value of coal burnt
excise duties and central levies on products, as in India’s power plants is only about 3500
well as differential state taxes and a normative kcal/kg. The high ash content also results in
pooling of the transport costs. These distortions higher emission of suspended particulate matter
and their impact on the profitability of central (SPM). However, the sulphur content of Indian
PSUs and private refiners are further coal is very low, and emission of SO2 during
compounded by subsidies on LPG and combustion is also low. Since SPM is
kerosene, which are exclusively marketed by comparatively easy to trap, Indian coal is
central PSUs that share part of the subsidy relatively clean. Despite large reserves of coal
burden. Efficient cost based private refiners domestic supply is tailored to barely meet
with no marketing obligations have thus had domestic demand for thermal coal with small
extraordinary advantages in this distorted quantities being imported. India is not self-
market. Even public sector refineries or sufficient in metallurgical coal and over 65% of
upstream operations such as Oil & Natural the demand is met through imports.
Gas Corporation (ONGC) make large profits
while oil marketing companies lose money. 24. The coal sector is dominated by Public
This has restrained the growth of private sector Sector Undertakings (PSUs) under the central
retailers who find it simpler to sell to the and state governments. PSUs engaged in the
public sector marketing companies at import production of coal and lignite contribute nearly

Integrated Energy Policy

90% and 73% of the total production of coal (Amendment) Bill, 2000, was introduced in
and lignite respectively. The Coal sector was Parliament to bring about suitable legislative
progressively nationalised between 1971 and amendments to permit private sector entry
1973 after recognising the need for scientific into the coal sector. However, its passage is
and planned development of resources and still awaited. Pending such amendment, the
improving the working conditions in existing captive mining policy was formulated within
mines. The objectives of ‘nationalisation’ have the bounds of existing legislation and several
not been realised completely. The country is coal blocks have been offered to potential
facing an acute shortage of coking coal supplies, entrepreneurs to exploit coal for their own
the demand and supply balance of non-coking consumption. Foreign Direct Investment (FDI)
(thermal) coal is extremely tight with marginal in coal mining has been allowed and mining
quantities of imports required to fill the gap. by joint venture companies is permitted albeit
More importantly, the quality of thermal coal for captive mines. Coal blocks have also been
has been deteriorating over the years. The allocated to other PSUs under Central and
increasing share of opencast mines is one of State Governments for coal mining.
the contributing factors for the deterioration
in quality. There has been only a marginal 27. Large estimates of total coal resources
improvement in productivity. The level of give a false sense of security because current
mechanisation of underground workings and and foreseeable technologies convert only a
the success thereof has also not met small fraction of the total resource into the
expectations. mineable category. The capacity of PSUs
engaged in exploration has restricted the pace
25. A lack of competition, the absence of of proving indicated and inferred resources.
suitable benchmarks for different operational This limited capacity, coupled with the
parameters and the absence of an independent economics of opencast mines versus
Regulator for the sector have constrained the underground mines, gives only limited incentive
growth of coal industry. Problems of land to explore for coal beyond 300m depth.
acquisition and rehabilitation, stiff legislation
covering forest conservation and environment 28. Clean coal technologies for improving
management have also, to some extent, affected the efficiency of energy conversion and limiting
the pace of development of the coal sector. emissions; research and development initiatives
Indian Coal is internationally competitive at for establishing additional sources of energy
the pithead. However, its pricing has remained such as coal bed methane; in-situ gasification of
non-transparent and its distribution is restricted un-mineable and deep seated coal reserves; and
through a complex regime of linkages based on the liquefaction of coal are promising areas for
a constrained rail infrastructure that offers little action but are still in their infancy.
flexibility. Moreover, freight rates are exorbitant
and cross subsidise passenger traffic. This makes 29. While we have developed indigenous
Indian coal progressively uncompetitive as it technological capability in all aspects of nuclear
moves away from the pitheads. In spite of low power, our ability to develop nuclear power is
(5%) import duty on thermal coal, imports restricted by the very limited availability of
have been sluggish. This is primarily due to Uranium. In fact, the present Uranium shortage
constraints of port capacity and the cost has forced us to operate even the small nuclear
associated with multiple handling and inland generation capacity that we have at a load
transportation of imported coal. Unfortunately factor below what is technically possible. The
coal consumption at coastal sites is currently pace at which we can expand nuclear power
minimal. generation using indigenous fuel sources is
thus severely limited even though the eventual
26. The entry of the private sector in coal potential for nuclear power generation is vast.
production is essential for realising efficiency
gains and augmenting the domestic coal supply. 30. There is large unexploited hydel
Consequently, the Coal Mines Nationalisation potential in the country. Development of this

The Challenges

involves relatively long gestation lags. 33. The continued dependence on biomass-
Moreover, storage schemes often involve based fuels, which are mostly obtained from
displacement of people and submergence of forests, raises the threat of deforestation,
land. Project affected people need to be resettled thinning of forests and a loss of habitat and
and rehabilitated. Also, storage schemes may bio-diversity.
have other environmental consequences such
as adverse impact on aquatic life and 34. Thus in summarising the energy scene
downstream ecosystems. While these problems we note that the immediate problems are
are not unsurmountable they have not been shortages of fuels, a growing dependence on
adequately attended to in the past. There is, imported oil that is becoming dearer by the
therefore, some opposition to the development day, and a power sector with ill financial
of large storage schemes. However, storage health that discourages growth in a country
schemes help utilise water that would have that needs energy for growth and for
otherwise gone to the seas. Run of the river improving human welfare. These problems
schemes avoid these problems though at the should be addressed in the context of our
cost of a much lower utilisation of the available long-term energy requirements and the
hydro resource both in terms of water usage available strategic options to fulfil them so
and its energy potential. Most importantly, that we may not get locked into paths that
run of the river schemes, typically, have much we may regret later.
lower capacity for delivering peak power
compared to storage schemes. Thus, if a river 1.2 THE ISSUES
basin can support storage projects, a careful
35. The energy scene described above raises
economic analysis must be done before allowing
a number of issues. We divide these into two
that potential to be converted to the easy-to-do
categories: those that need to be addressed
run of the river schemes.
from a long-term perspective and those that
are pressing problems in the short-term.
31. Given the shortage of conventional
fuels, non-conventional energy sources hold a 36. From a long-term perspective a number
special attraction for the country. Despite many of issues need to be addressed:
years of efforts and despite the significant
growth of small-hydro and wind power, the (a) How much energy do we need over
contribution of non-conventional energy the long run? Given our resources,
sources such as wind, solar, biogas, etc., to our what should be our strategy to meet
total energy use has remained below 1%. the growing demand?
(b) How do we promote the efficient
32. Environmental problems associated allocation of various fuels and energy
with energy use have become severe in many forms to different uses? What should
urban areas. Most of our cities have a high be their relative prices?
concentration of one or more pollutants above (c) How do we address the legitimate
the safe limit. In fact, many Indian cities are concerns of States rich in energy
among the most polluted cities in the world. resources such as coal and hydro?
The Supreme Court mandated the use of (d) What institutional reforms are needed
Compressed Natural Gas (CNG) for buses, to generate competitive efficiency? How
taxis and three-wheelers in Delhi beginning do we leverage the strength of public
September 2001. Other cities are following sector units that dominate energy
this lead. In our energy strategy environmental sectors? How do we obtain credible,
concerns have to be factored in to reduce independent, transparent and consistent
emission of local pollutants as well as global regulatory oversight in the energy
pollutants to ensure that the energy strategy is sector?
ecologically sustainable. (e) What is the role of renewables in our

Integrated Energy Policy

energy supply? How do we promote (c) How do we ensure fuel supply for
their development? power generation? How should we
(f) How should we increase India’s known expand coal supply in a cost effective
energy resources? What new way? How can we promote investment
technologies are relevant for India’s in coal production? How do we
future? How do we promote their expand production by captive mines?
development? What should be our How do we facilitate import of coal
R&D strategy? to meet shortfalls in domestic supply
and wherever imports are cost
(g) What is the scope for increasing the
energy efficiency of the system? What
policies can lead to higher efficiency? (d) How should we allocate and price
How do we encourage energy domestic gas?
conservation and energy efficiency? In (e) How do we deal with the rising cost of
particular, how do we reduce the use oil in the world market? How to
of petroleum fuels for transport? What minimise its adverse impact on the
policies are needed to promote fuel economy?
efficiency and alternatives in transport? (f) How do we provide clean cooking
(h) How do we ensure energy security? energy to all? How can we develop an
What is the role of obtaining equity energy system that is poverty and
energy abroad? How do we reduce gender sensitive?
dependence on imported energy?
(g) How do we provide access to electricity
(i) How do we encourage an energy for all households? Considering some
system that keeps air pollution within consumption of electricity as a merit
acceptable limits? The growing global good that we want all to consume,
concern over the threat of climate how should it be financed?
change requires that India continues to
(h) How do we provide subsidy for
increase its energy supply in a
electricity and clean cooking fuels to
responsible manner without
certain consumers e.g. poor households
compromising its economic growth
or agricultural pumps, in ways that do
imperative. India’s long-term energy
not encourage wasteful use of
strategy must take this into account.
37. In the short-term, our pressing
problems are: 1.3 THE VISION
(a) How do we deal with persistent power 38. The broad vision behind the energy
shortages? How do we expand policy is to reliably meet the demand for
capacities for generation, transmission energy services of all sectors including the
and distribution? How to generate lifeline energy needs of vulnerable households
investible surpluses with SEBs? How in all parts of the country with safe, clean and
do we improve the financial health of convenient energy at the least-cost. This must
SEBs? How do we reduce AT&C be done in a technically efficient, economically
losses? viable and environmentally sustainable manner
(b) How do we reduce the cost of power using different fuels and forms of energy, both
and improve its quality? How should conventional and non-conventional, as well as
we do away with cost plus regime? new and emerging energy sources to ensure
How do we introduce competition? supply at all times with a prescribed confidence
How can we encourage private sector level considering that shocks and disruption
participation in the power sector? How can be reasonably expected. In other words,
can we provide open access in a level the goal of the energy policy is to provide
playing field? energy security to all.

The Challenges

1.4 NEED FOR AN INTEGRATED (c) Level Playing Field

POLICY All players and energy projects, public
or private, large or small, domestic or
39. The need to have an integrated policy
foreign should be treated equally if the
arises because different fuels can substitute for
sector is to be efficient.
each other in both production and
consumption. Alternative technologies are (d) Uniform Treatment of Externalities
available and there is substantial scope for Different fuels may have different
exploiting possible synergies to increase energy externalities in their production and
system efficiency and to meet requirement for for use. Thus for example, coal involves
energy services. If the energy system is to be mining with potential to damage land
efficient, our policies must be integrated. while nuclear power involves a much
Currently with five separate ministries (Coal, smaller amount of mining but poses
Petroleum & Natural Gas, Atomic Energy, problems of hazardous waste disposal.
Power and Non-Conventional Energy sources), Biomass based fuels are renewables and
each concerned with its own turf, policies are may not result in carbon emissions,
not always consistent, opportunities for inter- but the air pollution caused by their
linkages and synergy are missing and sub- use may have a severe and adverse
optimal solutions are the result. We briefly impact on health. Our policies need to
look at issues that call for an integrated policy take an integrated view so that
and describe some of the attributes of such a environmental objectives are attained
policy. at least-cost.
(a) Relative Prices (e) Public Infrastructure
Different fuels have different calorific Many elements of the energy system
values. Their efficiency in use and constitute public infrastructure with
convenience also differ. Moreover, they many positive externalities and
generate different kinds and amounts economies of scale. Some of them are
of pollution. And yet often they are natural monopolies. Ports, roads, rail
substitutes for each other in specific roads, urban mass transport, etc., play
uses. Their relative prices, therefore, an important role in the energy system.
have to be set in a way that the resulting Transmission networks or gas pipeline
inter-fuel choices are socially and networks have large economies of scale.
economically desirable. For this, their These are often developed through
marginal use values per rupee of fuel public efforts or through public-private
need to be equivalent. Thus prices of partnerships. Their development needs
different fuels should not be set to be coordinated and their functioning
independently of each other. regulated.
(b) Consistent Tax Structure (f) Long Gestation Lags, R&D and
Relative prices can be affected by taxes Transition Strategy
and subsidies. Excise and import duties Many energy projects involve large
have to be consistent across different investments and have long gestation
fuels. For an optimal allocation of lags. An integrated policy needs to
resources, taxes on capital goods that provide a framework of development,
use different fuels to produce the same and a strategy of transition to the
output should be consistent. The tax desired energy future. In particular,
structure on alternate fuels may be R&D for new technologies and new
used to promote desired policy sources may be most successful with
objectives relating to environment, long-term commitment and support.
utilising domestic energy resources, Setting priorities among alternative
generating employment etc. R&D missions and defining an optimal

Integrated Energy Policy

R&D strategy require an integrated (j) Energy for the Poor

perspective on the future of the energy Some amount of clean cooking fuels
system. (LPG and Kerosene) and electricity are
merit goods, which justifies subsidies
(g) Consistent Regulation
for these goods for the poor. These
The energy sector requires regulatory subsidies have to be consistent,
oversight to balance consumer and progressive and implementable. Ideally,
producer interests, to ensure efficiency they should also be self-targeting and
and to create a level playing field. self-limiting. Implemented properly,
Natural monopolies need regulation to they could, especially for women,
ensure open access to all so that relieve drudgery, reduce health impact,
competitive efficiency is realised. increase productivity and enhance
However, regulation should be livelihood options.
consistent across different energy
sources and across regions, which
requires an integrated policy.
40. Traditional approach to the energy
(h) National Priorities policy - of determining optimal supply strategy
While competitive efficiency is a with quantitative targets - is no longer
desirable goal, policies have to factor appropriate. We must provide policies that
in national priorities. Thus if the create an enabling environment and provide
country decides that food security is incentives to decision makers, consumers,
paramount and that a certain level of private firms, autonomous public corporations,
fertiliser self-sufficiency is required, then and government departments, to behave in
the energy policy needs to provide for ways that result in socially and economically
it. If this calls for a certain quantitative desirable outcomes. The Committee’s approach
allocation of natural gas, one must has been to identify such policies.
consider such an allocation, though
one should ideally find an 41. It is not necessary to compare precisely
implementation solution that is at the the economics of alternatives as the policy
least-cost. does not mandate which alternative should be
used and when. Relative economics of
(i) Regionally Balanced Development alternatives depend on particular circumstances,
Energy infrastructure is critical for relative prices of different fuels as well as
development. For regionally balanced technological developments. These comparisons
development, energy should be and the resulting choices among them are best
available in all regions. Freight and left to economic decision takers. Thus, policy
transmission equalisation, as practised recommendations have been presented as broad
in the past, has often caused regionally principles, leaving the details to be evolved, if
distorted development. Thus Bihar, in necessary, by implementing agencies in the
spite of its natural resources, has framework of plans and programmes at any
remained industrially underdeveloped. point of time.
One needs to use more direct
instruments where incentives are linked 42. The institutional structure in the public
to outcomes. Distortion of energy sector that we have so assiduously built up
prices do not often serve this purpose. during the last 55 years or so to promote self-
As different fuels and resources are sufficiency and self-reliance in energy, has led
differentially distributed geographically, to a monopolistic market structure and led to
an integrated approach can help the systemic infirmities that are inherent in
minimise the cost of distortions and cases of majority public ownership of an
incentives. enterprise. However, the Committee recognises

The Challenges

that in a liberalised economy, the private sector industry structure. For example,
is expected to play an important role in the experience in electricity sector has
energy sector. shown that good regulation under a
proper industry structure can mimic
43. Keeping this in mind our approach to competition. It must also be noted that
designing an integrated energy policy is based the mere presence of competition does
on the following premises: not negate the need for independent
regulation – it only changes the scope
(a) Effective implementability of policies
of regulation.
is important. Any policy that depends
on the good behaviour of many people (f) Social objectives should not be sacrificed
is unlikely to be effectively to the objective of competition but
implementable. should be made consistent with it
through the use of direct transfers
(b) Informed debate based on widely where possible.
disseminated and reliable data is critical
for effective policy formulation. (g) Policy has to recognise the existing
institutional structure of the energy
(c) Incentive compatible policies that factor sector and define a transition strategy
in stakeholder concerns are more likely of reforms.
to be acceptable and implementable.
(h) Policies should reflect externalities of
(d) Competitive set-ups that give energy consumption.
appropriate signals to various economic (i) Efficiencies across the energy chain
agents, such as prices, are to be should be improved.
(e) Independent Regulators have critical 44. With these principles in mind, we will
roles to play. However, regulation is now look at energy by each fuel source as well
not always a substitute for competition as at the power sector to address issues identified
and by itself cannot give efficient earlier. Keeping in mind the need for
outcomes. Regulation should be integration, we will underline aspects of policies
complemented by an appropriate that need to be integrated with other policies.

Integrated Energy Policy Chapter II

Energy Requirements
Long-term projections for energy obtained from time series data of India’s
requirements are based on assumptions vis-à- commercial energy use. These elasticities are
vis the growth of the economy, population summarised below:
growth, the pace at which “non-commercial
energy” is replaced by “commercial energy”, 3. The elasticity for per capita primary
the progress of energy conservation, increase commercial energy supply with respect to per
in energy efficiency as well as societal and capita GDP estimated from the time series data
lifestyle changes. It is not surprising, therefore, of India comes to 0.82 since 1990-91 which is
that available projections differ widely. Yet it significantly lower than 1.08 estimated for the
is useful to have a set of consistent projections period since 1980-81. Similarly the elasticity
with clearly stated assumptions to outline the for per capita electricity generation is only
broad discussion of the challenges facing us in 1.06 since 1990-91 compared to 1.30 for the
meeting energy needs as well as to provide a period since 1980-81. We have used electricity
framework for policy formulation. Having said generation rather than consumption because
this, it is emphasised that a rigorous demand while losses have been rising over time, precise
analysis has not been conducted by the data is not available on technical losses and
Committee and the numbers here and in commercial losses (which includes pilferage,
Chapter III merely establish an indicative range non-billing, and non-collection). Except for
of likely energy demand, supply and mix. technical losses all electricity made available
However, the policy recommendations that contributes to GDP. However, since even
emerge are not affected by the lack of precision technical losses have been rising (current
in the demand projections. estimates are upwards of 15%) using electricity
generation instead of actual consumption gives
2.1 COMMERCIAL ENERGY NEEDS higher elasticities. Importantly though, the
elasticities in India are falling over time (or
2. We projected total primary commercial with increasing GDP).
energy requirement on the basis of elasticity
w.r.t. GDP, which gives a percentage change 4. The energy elasticities of GDP can be
in commercial energy requirement for one reshaped by policy interventions, the relative
percent change in GDP. The elasticities are prices of fuels, changes in technology, changes

Table 2.1
Energy Use Elasticity w.r.t. GDP
(Percent change in Commercial energy use for one percent change in GDP)
Regression Using India’s Time Series
Per Capita
1. TPCES w.r.t. GDP (Rs. Crores 1993-94) 1980-81—2003-04 1.08
1990-91—2003-04 0.82
2. Electricity Generated w.r.t. GDP (Utilities + Captive) 1980-81—2003-04 1.30
1990-91—2003-04 1.06
TPCES = Total Primary Commercial Energy Supply

Energy Requirements

Table 2.2
Elasticities Used for Projections
(TPCES w.r.t. total GDP)
TPCES 1 TPCES 2 Electricity Electricity
(Falling (Constant (Falling (Constant
elasticities) elasticities) elasticities) elasticities)
2004-05 to 2011-12 0.75 0.8 0.95 0.95
2011-12 to 2021-22 0.70 0.8 0.85 0.95
2021-22 to 2031-32 0.67 0.8 0.78 0.95

in end-use efficiency of equipment, the level of data. The elasticity for electricity consumption
the energy infrastructure and development comes to 1.24 for all countries and to 1.25 for
priorities that affect the structure of the PPP GDP range of $2000 to $8000. India’s
economy. Normally, overall elasticity falls over elasticity for electricity generation is comparable
time as is corroborated by the time series data to that of countries with per capita GDP
for India’s commercial energy consumption. exceeding $8000 in PPP terms. Importantly,
However, there is also a feeling that, for India, the trend of falling elasticities with rising
the energy elasticity of GDP growth will not income levels is demonstrated even by cross
fall any further as rising income levels will country data.
foster life style changes that are more energy
intense. Based on these alternative views two 6. Using the above estimates, commercial
sets of elasticities were used for projecting energy needs have been projected for different
India’s commercial energy demand. The two growth scenarios using falling and constant
sets of elasticities used are shown in Table 2.2. elasticities from Table 2.2. These projections
are given in Table 2.4, which also shows
5. To get a feel for how India’s energy population projections by the Registrar of
elasticities compare with other countries, we Census. It is noted, though, that the number
have estimated these elasticities using cross- based on constant elasticities is not used in this
country regression based on data of 2003. These report for any comparison.
are shown in Table 2.3. The elasticity for total
primary energy supply, TPES, comes to 0.83 2.2 REQUIRED ELECTRICITY
for all countries and to 0.79 for countries with GENERATION
a PPP GDP between $2000 and $8000 (India’s
GDP in PPP terms based on 2000 dollars was 7. Requirement for electricity generation,
$2732 in 2003 and by 2031-32 might reach the (projected using the elasticities of Table 2.2) are
upper end of the range). India’s energy elasticity shown in Table 2.5. Plan-wise projected
for commercial energy is comparable to the electricity generation and capacity additions
elasticity estimates for TPES using cross country are shown in Figures 2.1 and 2.2 respectively.

Table 2.3
Energy Use Elasticity w.r.t. GDP from Cross-Country Data of 2003
1. TPES (kgoe/capita) w.r.t. per capita GDP ($ PPP 2000) All Countries 0.83
2000 <GDP <8000 0.79
GDP >8000 0.76
2. Electricity Consumption (kWh/capita) w.r.t. per capita All Countries 1.24
GDP ($ PPP 2000) 2000< GDP <8000 1.25
GDP >8000 1.09

Integrated Energy Policy

Table 2.4
Projections for Total Primary Commercial Energy Requirements
(Mt of Oil Equivalent)
Year Population GDP TPCES TPCES
in millions (Rs. in Billion (Mtoe) 1 (Mtoe) 2
@1993-94 prices) GDP Growth Rate GDP Growth Rate
8% 9% 8% 9% 8% 9%
2006-07 1114 17839 18171 389 397 394 403
2011-12 1197 26211 27958 521 551 537 570
2016-17 1275 38513 43017 684 748 732 807
2021-22 1347 56588 66187 898 1015 998 1142
2026-27 1411 83145 101837 1166 1360 1361 1617
2031-32 1468 122170 156689 1514 1823 1856 2289
Note: 1. Projections based on falling elasticities with respect to GDP
2. Projections assuming no change in elasticities with respect to GDP
3. It is pointed out that the level of commercial energy consumption shown for 2006-07 is not
expected to be achieved as the growth in demand for petroleum products in the first 4 years of
the 10th Plan has only been 2.8% per annum. However, over the long-term, the projections may
still be valid as incomes and access improves.

Table 2.5
Projections for Electricity Requirement
(Based on Falling Elasticities of Table 2.2)
Year Billion kWh Projected Peak Installed Capacity
Demand (GW) Required (GW)
Total Energy Energy Required @ GDP Growth @ GDP Growth
Requirement at Bus Bar Rate Rate
@ GDP Growth @ GDP Growth
Rate Rate
8% 9% 8% 9% 8% 9% 8% 9%
2003-04 633 633 592 592 89 89 131 131
2006-07 761 774 712 724 107 109 153 155
2011-12 1097 1167 1026 1091 158 168 220 233
2016-17 1524 1687 1425 1577 226 250 306 337
2021-22 2118 2438 1980 2280 323 372 425 488
2026-27 2866 3423 2680 3201 437 522 575 685
2031-32 3880 4806 3628 4493 592 733 778 960
Note: Electricity generation and peak demand in 2003-04 is the total of utilities and non-utilities above 1
MW size. Energy demand at bus bar is estimated assuming 6.5% auxiliary consumption. Peak
demand is estimated assuming system load factor of 76% up to 2010, 74% for 2011-12 to 2015-16,
72% for 2016-17 to 2020-21 and 70% for 2021-22 and beyond. The installed capacity has been
estimated keeping the ratio between total installed capacity and total energy required constant at the
2003-04 level. This assumes optimal utilisation of resources bringing down the ratio between installed
capacity required to peak demand from 1.47 in 2003-04 to 1.31 in 2031-32.

Energy Requirements

Figure 2.1
Projected Electricity Generation Growth (BkWh)

Figure 2.2
Plan-wise Projected Installed Capacity Addition (MW)

8. For comparison purposes, Table 2.6 this report, however, the projections of Table
provides projections of electricity demand made 2.5 have been used.
by the Ministry of Power. For the purposes of

Table 2.6
Projections for Electricity Requirement by MOP
Year Billion kWh Installed Capacity (GW)
8% 9% 8% 9%
2006-07 700 700 140 140
2011-12 1029 1077 206 215
2016-17 1511 1657 303 331
2021-22 2221 2550 445 510
2026-27 3263 3923 655 785
2031-32 4793 6036 962 1207

Integrated Energy Policy

9. Electricity requirements can be met by 63,000 MW from nuclear power sources and a
various alternative fuels. These include coal, 14,000 MW capacity from wind farms by 2031-
nuclear power, hydropower, gas, oil and 32. These scenario assumptions in respect of
renewables such as biomass, wind energy, solar hydro and nuclear may not be fully realised
energy, etc. In order to understand the broad and are made here in order to characterise the
dimensions of the fuel requirements for power boundaries of alternative choices. Generation
generation, a possible fuel mix scenario has from coal-based stations also includes electricity
been developed. The projections of this generation from lignite. The scenario also forces
scenario are summarised in Table 2.7. It is gas usage for power generation with gas-based
important to note that Table 2.7 represents electricity share rising from about 10% to 16%
one possible scenario and it should not, in between 2003-04 and 2031-32. As a result of
any way, be considered as the preferred these assumptions, the share of coal-based
scenario. Also to the extent that gas, hydro electricity drops from 72% to 61%. The demand
or nuclear capacity cannot be realised as for oil in power sector covers consumption of
projected in the scenario, coal-based petroleum products in diesel based plants as
generation will need to fill the gap. In well as secondary oil consumption in coal-
reality, the choice between coal and gas will based plants.
be guided by economic and commercial
considerations including any policy 2.3 INDIA’S OIL DEMAND
prescriptions for pricing-in certain
environmental externalities. The level of gas 11. Long-term growth in demand of
use projected in the scenario under Table petroleum products depends upon a number of
2.7 is based on somewhat optimistic factors such as economic growth (GDP),
assumptions of gas availability and of its elasticity of demand for petroleum products
ability to compete with coal on price. Should with respect to GDP growth, relative price
these assumptions not hold true, coal levels of substitute products particularly LNG/
dependence will increase. CNG, saturation of LPG demand, and the
impact of energy conservation measures. The
10. The projections in Table 2.7 assume demand for petrol and diesel is dependent on
exploitation of full hydro potential of 1,50,000 the growth of road infrastructure, the price of
MW in the country, a capacity addition of oil, the future efficiency of vehicles, the growth

Table 2.7
Sources of Electricity Generation – One Possible Scenario
Year Electricity Hydro Nuclear Rene- Thermal
Generation (BkWh) (BkWh) wables Energy Fuel Needs
at Bus Bar (BkWh) (BkWh)
(BkWh) Coal (Mt) NG (BCM) Oil* (Mt)
8% 9% 8% 9% 8% 9% 8% 9% 8% 9%
2003-04 592 592 74 17 3 498 498 318 318 11 11 6 6
2006-07 711 724 87 39 8 577 590 337 379 12 14 6 6
2011-12 1026 1091 139 64 11 812 877 463 521 19 21 8 8
2016-17 1425 1577 204 118 14 1089 1241 603 678 33 37 9 10
2021-22 1981 2280 270 172 18 1521 1820 832 936 52 59 12 12
2026-27 2680 3201 335 274 21 2050 2571 1109 1248 77 87 14 15
2031-32 3628 4493 401 375 24 2828 3693 1475 1659 119 134 17 20
*includes secondary oil consumption for coal-based generation

Energy Requirements

of alternate modes of transport and the sectors. Total demand, defined as the aggregate
emergence of substitutes like bio-fuels and/or demand across various non-power coal
technologies such as hybrids. Naphtha demand consuming sectors such as steel, cement etc., is
is dependent on the growth plans for fertiliser assessed by determining the outputs of each
and petro-chemicals and its price relative to the sector, which in turn are functions of GDP
price and availability of natural gas. Different growth. In the last decade or so, a gradual
agencies have made various projections decline in the elasticity of demand of coal
estimating changes in demand of petroleum against GDP has been observed. Possible
products. The committee has reviewed the reasons for this decline can be: (a) rising share
demand projections made by Energy of the non-energy consuming sector in the
Information Administration(EIA), USA, aggregate GDP; (b) substitution of coal by
International Energy Agency(IEA), India alternative fuels; and (c) technological
Hydrocarbon Vision 2025, India Vision 2020, innovations in coal consuming sectors leading
Working Group Report for the 10th Plan, to energy efficiency and a reduction in specific
Power & Energy Division and Integrated consumption.
Research and Action for Development - Price
Waterhouse Coopers (IRADe-PWC). 15. The committee has reviewed the
demand projections made by Energy
12. A summary of the projections by Information Administration (EIA),
various agencies is given in Table 2.8. As the International Energy Agency (IEA), India vision
available projections by these agencies are for 2020, India Hydrocarbon Vision 2025, Coal
different years, the same have been interpolated Vision 2025, Working Group Report for the
or extrapolated to bring them to a common 10th Plan and the Power & Energy Division
year to ease comparison. The projections by of Planning Commission. A summary of
IEA and EIA are based on unrealistically low projections by various agencies is given in
growth rates of GDP for India. It may be seen Table 2.9. Projections have been brought to a
that the demand for the year 2025 varies from common year by interpolation/extrapolation
235 Mt for the Best Case Scenario (BCS) of for ease of comparison. The projections by
India Vision 2020 to 368 Mt of India IEA and EIA are based on low growth of GDP
Hydrocarbon Vision (IHV) 2025. The IRADe- for India. It may be seen that the projected
PWC projections exclude Naphtha and their demand for coal in the year 2024-25 varies
projection of 347 Mt under high growth case from 971 Mt for the “Business as Usual”
(HOG) is comparable to 368 Mt of India scenario of India Vision 2020 to 1402 Mt in the
Hydrocarbon Vision. India Hydrocarbon Vision 2025 report. The
Committee decided to use the projections
13. It should be emphasised that most of carried out for Coal Vision 2025 by TERI for
these projections do not factor in the impact of non-power coal requirements and extrapolated
change in prices. The world market in them for estimating the coal requirement for
petroleum products has seen large swings in non-power use in 2031-32.
prices and future prices are difficult to predict.
Since these projections vary a lot, we have 2.5 INDIA’S NON-POWER
projected oil demand by detailed sectoral end- NATURAL GAS DEMAND
use analysis.
16. Currently, the Indian gas market is
2.4 INDIA’S COAL DEMAND FOR supply constrained, especially since the future
demand for gas appears to be strong. Table 2.10
summarises the various long-term projections
14. Long-term projections of the demand available for gas in India. As the available
for coal are quite complex owing to rapid projections by these agencies are for different
changes in the relative availability and prices years, the same have been interpolated or
of different fuels as well as the technological extrapolated to bring them to common years
advancements and new policies in the end-use and have been converted into MMscmd for the

Table 2.8
Demand Scenario for Petroleum Products - India
(By Various Agencies/Organisations)
Projections by the Various Agencies
EIA (2004) IEA IHV–2025 India Vision–2020 Working Power &
(2004) (2000) (2002) Group Energy IRADe & PWC*
Integrated Energy Policy

Report of Division’s (2005)

Year Reference High Low 10th Plan (Planning
Case Case Case (2001-02) Commission)
BAU BCS Projections BAU HOG
Base Year 2001 2001 2001 2000 1998-99 1997 2001-02 2001-02 2003-04
(105 Mt) (105 Mt) (105 Mt) (102 Mt) (91 Mt) (83 Mt) (108 Mt) (108 Mt) (109.7 Mt)
2004-05 119 122 115 122 132 121 112 119 124 125 127
2009-10 139 149 129 145 175 153 135 139 147 162 176
2014-15 157 194 154 171 226 193 162 164 174 191 212
2019-20 219 254 189 201 288 245 195 195 207 212 259
2024-25 264 324 204 230 368 309 235 232 240 260 347
2029-30 271 276 281 320 465
EIA - Energy Information Administration, USA IRADe - Integrated Research and Action for Development
IEA - International Energy Agency BAU - Business as Usual PWC - Price Waterhouse Coopers
IHV - India Hydrocarbon Vision 2025 BCS - Best Case Scenario HOG - High Output Growth
Note: As the available projections by the various agencies are for different years, the same have been interpolated or extrapolated to bring them to
common years for comparison purposes.
Table 2.9
Demand Projection of Coal by Various Agencies in Mt
Source Sectors/Period Base year 06-07 2010 2011-12 2015 2016-17 2020-21 2021-22 2024-25 2025 2030
Power 322 469 617
Captive Power 28 32 37
X Plan working Steel 43 40 40
group Cement 25 24 25
Fertiliser 4 5 5
Others 51 50 56
Total 2001-02 473 620 780 981 1126
Power 322 413 517 635 719
Captive Power 28 43 60 84 102
Coal Vision Fertiliser 4
2025* 7% GDP Steel 43 53 67 84 97
Cement 25 38 58 88 113
Others 51 64 80 101 117
Total 2006-07 473 611 782 992 1147
Power 322 427 553 699 804
Captive Power 28 44 63 90 112
Coal Vision Fertiliser 4
2025* 8% GDP Steel 43 54 69 90 105
Cement 25 39 61 95 123
Others 51 65 82 106 123
Total 2006-07 473 630 828 1079 1267
Hydrocarbon 1998-99 1118 1402 1483
Vision 2025
Best Case 1997-98 538 659
India Vision Scenario
2020 Business As (311) 688 971
High 2001 408 473 548 611 629
EIA Low 374 411 447 481 490
Reference 390 439 493
IEA 2000 484 623 713 817
P&E Division, 2001 481 612 764 920 957 1417
Planning Comm. (2031-32)
Energy Requirements

* Projections made by TERI for Coal Vision 2025

Integrated Energy Policy

purpose of comparison. It may be seen that the 2031-32. Table 2.7 gives the gas demand for
demand for gas varies from 155 MMscmd in power based on this share of gas in electricity
low case of EIA to 738 MMscmd in HOG case production.
of IRADe-PWC for the year 2024-25. Most of
these projections have not taken into account 2.6 TOTAL PRIMARY
the price sensitivity of gas. The IHV 2025 COMMERCIAL ENERGY
states that the share of oil and gas in India’s REQUIREMENT
energy mix would be 25% and 20% respectively.
Based on the numbers given in IHV 2025 for 19. Putting together the various projections
projected oil demand (364 Mtoe) the gas demand discussed above for coal, oil and natural gas for
works out to be 291 Mtoe if the respective non-power use, the commercial fuel
shares are as stated. However, IHV 2025 also requirement for non-power use are summarised
states that the projected demand for gas in below in Table 2.11.
2025 will be 391 Million Standard Cubic Metre
Per Day (MMscmd) which translates into only 20. Total commercial primary energy
128 Mtoe. This error makes the estimates in requirements based on the scenario drawn for
IHV 2025 inconclusive. India Vision 2020 has power in Table 2.7 and the projections made
estimated the demand for gas to be between 65 for non-power oil, coal and gas are
and 71 Billion Cubic Metres (BCM) for the summarised in Table 2.12 using the common
year 2020. IRADe-PWC has projected demand unit of million tonnes of oil equivalent
of natural gas and natural gas equivalent of (Mtoe). It is emphasised that Table 2.12 is
Naphtha at 243 BCM under the business-as- merely one scenario that forces Hydro
usual (BAU) scenario and 405.7 BCM under (1,50,000 MW), forces Nuclear (63,000 MW)
High Output Growth (HOG) scenario for the and forces share of gas-based power generation
year 2030. (16%). Other scenarios based on DSM,
efficiency improvements, renewables etc. will
17. Natural gas can replace existing fuels bring down the commercial energy
in various sectors both for feedstock as well as requirements further and change the fuel mix
for energy purposes. However, this substitution shown in Table 2.12. In Chapter III
will depend upon the relative price of gas with commercial energy supply and the commercial
respect to other fuels. Therefore, it may be energy mix is projected under a number of
stated that the demand for gas will depend scenarios reflecting specific policy initiatives.
upon the price of natural gas relative to that of The commercial energy supply under these
alternatives, mainly Naphtha for fertiliser and scenarios varies from a low of 1351 Mtoe to
petrochemicals and coal for power. a high of 1702 Mtoe. It is noted that the
commercial energy requirement of 1514 Mtoe
18. The above wide range of estimates for estimated on the basis of falling elasticities
gas demand was considered by the Committee. (Table 2.4) is not significantly different from
It was agreed to base the demand estimate for the mid-point of this range (1526 Mtoe).
non-power gas on the assumption that the Again, the requirement assessed in Table 2.12
projected fertiliser (urea) capacity by 2031-32 is based on assumptions that correspond to
would be all gas-based; and non-power end- scenario 5 under Chapter III. The commercial
uses of gas will continue to grow at 8% or 9% energy requirement estimated in Table 2.12 is
per annum depending upon GDP growth. The above the mid-point of the range of
committee considered this to be a realistic commercial energy supply established by the
basis for estimating the use of gas for non- various scenarios under Chapter III.
power use. The use of gas for power generation
will depend on the availability of gas and the 21. Figure 2.3 shows the actual percentage
price relative to coal. As detailed in Paragraph shares of various commercial energy sources in
10, the forced gas scenario results in a 16% 2003-04 and as projected for 2031-32 in the
share for gas-based electricity generation by scenario under Table 2.12.

Table 2.10
Demand Scenario for Natural Gas - India
(By Various Agencies/Organisations)
Projections by the Various Agencies
EIA (2004) Power &
Year IEA IHV-2025 India Vision-2020 Energy IRADe & PWC*
Reference High Low (2004) (2000) (2002) Division’s
Case Case Case BAU BCS (2003-04) BAU HOG
Base Year 2001 2001 2001 2000 1999 - 2000 1997 2001-02 2003-04
(62 MMscmd) (62 MMscmd) (62 MMscmd) (67 MMscmd) (110 MMscmd) (59 MMscmd) (81 MMscmd) (85 MMscmd)
2004-05 74 77 74 91 195 89 87 98 93 95
2009-10 93 101 93 140 277 115 111 134 145 164
2014-15 124 132 109 189 329 149 142 183 226 285
2019-20 155 171 132 228 358 194 177 249 356 493
2024-25 195 225 155 259 391 258 226 326 488 738
2029-30 295 430 667 1111
EIA - Energy Information Administration, USA IRADe - Integrated Research and Action for Development
IEA - International Energy Agency BAU - Business as Usual
IHV - India Hydrocarbon Vision 2025 BCS - Best Case Scenario
PWC - Price Waterhouse Coopers
HOG - High Output Growth
* includes Natural Gas & N G equivalent of Naphtha
Note: As the available projections by the various agencies are for different years, the same have been interpolated or extrapolated to bring them to common
years and have been converted into MMscmd for the purpose of comparison.
Energy Requirements

Integrated Energy Policy

Table 2.11
Commercial Fuel Requirements for Non-Power Use in Physical Units
1 2 3
Non-Power- Coal Non-Power - Oil Non-Power- Natural Gas
Mt Mt B.Cu.M
8% 9% 8% 9% 8% 9%
2003-04 91 91 113 113 20 20
2006-07 123 123 126 142 20 22
2011-12 164 170 158 178 30 32
2016-17 221 237 205 231 38 45
2021-22 299 334 266 299 56 65
2026-27 408 475 351 395 73 93
2031-32 562 684 469 528 100 133
Note: Estimated fuel requirements of coal, oil and natural gas are for non-power purposes.
As explained in Para 15
As explained in Para 13
As explained in Para 18

Table 2.12
Projected Primary Commercial Energy Requirements (One Possible Scenario)
Year Hydro Nuclear Coal Oil Natural Gas TPCES
8% 9% 8% 9% 8% 9% 8% 9%
2011-12 12 17 257 283 166 186 44 48 496 546
2016-17 18 31 338 375 214 241 64 74 665 739
2021-22 23 45 464 521 278 311 97 111 907 1011
2026-27 29 71 622 706 365 410 135 162 1222 1378
2031-32 35 98 835 937 486 548 197 240 1651 1858
CAGR -% 5.9 11.2 5.9 6.3 5.1 5.6 7.2 8 6 6.4
Annual Growth
Per capita 24 67 569 638 331 373 134 163 1124 1266
In 2032 (Kgoe)
In 2004 (Kgoe) 6.5 4.6 157 157 111 111 27 27 306 306
Ratio 2032/2004 3.7 14.6 3.6 4.1 2.9 3.4 5.2 6.3 3.7 4.1

2.7 NON-COMMERCIAL ENERGY by households for cooking energy. These are

REQUIREMENT called non-commercial because a major
proportion of these are simply gathered by
22. The so-called “Non-commercial” actual users directly as opposed to being traded
sources of energy, including fuel wood, commercially.
agricultural waste and dung, are primarily used

Energy Requirements

Figure 2.3

23. Based on the latest data available on consumption are included in the projection
household energy consumption from the NSS given in Table 2.12. The impact of the Rajiv
55th round covering the year 1999-2000, Gandhi Grameen Vidyutikaran Yojana
household demands are projected assuming that (RGGVY), which targets provision of electricity
income distribution in rural and urban areas to all by the year 2009-10, will alter the demand
remain log-normal with consumption. With for electricity. To account for this impact,
economic growth, the mean per capita household demands are projected from 2009-10
consumption in different expenditure classes onwards using the energy use pattern of only
change. It is also assumed that the pattern of those households in the NSS 55th round sample,
fuel use for a particular monthly per capita which had electricity. These are given in Table
consumption expenditure class remains the 2.14.
same as observed in the 55th round. The
projections are summarised in Table 2.13. 25. The differences are substantial only in
2011 and 2016, as even without the acceleration
24. It should be noted that the requirement in rural electrification planned under RGGVY,
of electricity, kerosene and gas for household most of the households will have been

Table 2.13
The Demand Scenario of Various Energy Items for Household Consumption in India
Fire Wood
Year Electricity Dung Cake Kerosene L.P.G.
& Chips
8% 9% 8% 9% 8% 9% 8% 9% 8% 9%
2000 79.62 79.62 8.43 8.43 29.61 29.61 10.07 10.07 6.42 6.42
2006 88.64 88.78 18.17 19.26 36.97 37.33 12.68 12.77 15.85 16.87
2011 94.11 94.05 27.17 29.68 40.42 40.48 14.01 14.02 23.94 26.07
2016 98.44 98.50 38.38 42.28 41.93 41.35 14.84 14.70 33.11 35.93
2021 102.06 102.46 50.39 54.78 41.79 40.87 15.16 14.93 41.63 44.16
2026 104.64 105.07 61.37 64.95 40.95 40.28 15.17 14.93 48.11 49.63
2031 106.39 106.59 69.72 71.80 40.47 40.21 15.12 14.96 52.27 52.89

Integrated Energy Policy

Table 2.14
The Impact of Electrification on the Demand Scenario of
Various Energy Items for Household Consumption
Fire Wood Electricity Dung Cake Kerosene L.P.G.
Year & Chips
8% 9% 8% 9% 8% 9% 8% 9% 8% 9%
2011 87.90 88.00 31.13 33.63 31.03 31.16 13.18 13.16 25.27 27.36
2016 92.59 93.02 42.58 46.51 32.21 31.53 13.82 13.64 34.30 36.95
2021 96.85 97.67 54.89 59.35 31.45 30.28 13.98 13.71 42.45 44.72
2026 100.01 100.72 66.19 69.86 30.00 29.12 13.88 13.61 48.55 49.88
2031 102.08 102.41 74.82 76.95 29.14 28.78 13.76 13.59 52.49 53.05

electrified by 2019-20. It is worth noting from 26. The impact of other components of
a comparison of Tables 2.13 and 2.14 that for Bharat Nirman is difficult to assess. If we
the year 2011 electrification does not reduce assume that the programme will increase rural
kerosene consumption significantly. This is incomes by 1% every year, then the differences
rational. As long as kerosene is available, for the 8% and 9% growth rate column in
especially subsidised kerosene, what is saved Table 2.14 give some idea of resulting changes
from lighting is used as fuel and the in demand. In 2031, the total household
consumption of dung goes down. This requirement changes by some 3 percent (5
substitution is more convenient and the dung Mtoe) with a 1% higher growth rate.
saved has greater value as fertiliser. The use of
LPG for cooking will increase over time. Figure 27. It may be noted that the household
2.4 shows this. demand for non-commercial energy (firewood,

Figure 2.4
Percentage of Households Using LPG

Energy Requirements

chips and dung cake) increases from around from Table 2.4 with falling elasticities. As stated
109 Mtoe in 2000 to around 131 Mtoe in 2031. under Table 2.4 we may not achieve this level
The additional requirement is expected to be of total primary energy consumption in 2006-
met from agricultural residue and increased 07 as petroleum demand has been sluggish in
livestock activity that can be expected with 8- the first 4 years of the 10th Plan.
9% growth rates. In any case our goal should
be to progressively substitute these traditional 2.9 SUMMING UP
fuels with cleaner and more convenient fuels.
30. The challenge facing the country is to
28. It is pointed out that apart from being ensure that the energy needed to sustain an 8
used as household fuel, non-commercial energy to 9% growth rate becomes available. To put
is also used in the unorganised small and cottage the requirement in perspective, per capita
sector for end-uses such as brick kilns, pottery, energy use in other countries in 2003 is
jaggery, etc. It is estimated that such compared with India’s projected needs for 2032
consumption of non-commercial fuels was in Table 2.16. It is pointed out again that the
around 23.5 Mtoe in 2003-04. With easier scenario considered here is based on Table 2.12
availability of coal, gas and fuel oil growth in and 2.15 and is hence above the mid-point of
this segment is projected to be a sluggish 3.0% the range of energy supply scenarios established
per annum. Use of non-commercial energy by in Chapter III.
the unorganised sector is thus expected to
reach 54 Mtoe by 2031-32. 31. India’s per capita consumption of
energy in its various forms in 2003-04 is well
below that of developed countries and the
world average in 2003. Even in 2032, the per
capita consumption in India from various
29. Based on the commercial energy sources of energy will be well below the 2003
requirement projected in Table 2.12 and the level of per capita consumption in respect of
non-commercial energy requirement projected developed countries. In fact, as seen from Table
in Table 2.14 together with the non-commercial 2.16 India’s projected level of per capita energy
energy use by small industries as detailed in consumption in 2032, will be less than 74% of
Paragraph 28, the total primary energy is shown the world average in 2003.
in Table 2.15. Once again, it is emphasised that
this is one scenario that is above the mid-point 32. One should note that these projected
of the range of total primary energy supply needs are based on past trends from the demand
estimated in Chapter III. It is further noted that side based largely on the projection of income.
the 2006-07 requirement in Table 2.15 is taken They assume that energy prices will remain on

Table 2.15
Total Primary Energy Requirement (Mtoe)
8% 9% 8% 9% 8% 9%
2006-07 389 397 153 153 542 550
2011-12 496 546 169 169 665 715
2016-17 665 739 177 177 842 916
2021-22 907 1011 182 181 1089 1192
2026-27 1222 1378 184 183 1406 1561
2031-32 1651 1858 185 185 1836 2043
*This includes household requirement as per Table 2.14 and consumption by small industries as per Para 28.

Integrated Energy Policy

Table 2.16
Per Capita Energy Requirements in Selected Countries (2003)
TPES Electricity Oil Gas Coal Nuclear Hydro
(kgoe) Consumption (kgoe) (Cu.m.) (Kg) (kWh) (kWh)
India 2003-04 439 553 111 30 257* (375) 16 69
India 2031-32 (projected 1250 2471 331 149 925* (1388) 256 273
@ 8% GDP growth)**
World Average (2003) 1688 2429 635 538 740 403 423
OECD (2003) 4668 8044 2099 1144 1651 1924 1076
U.S.A. (2003) 7840 13066 3426 2176 3410 2624 948
China (2003) 1090 1379 213 32 1073 32 215
South Korea (2003) 4272 7007 2264 627 1541 2570 101
Japan (2003) 4056 7816 2146 845 1247 1859 816
*Per capita coal consumption of India has been estimated based on the calorific value of hard coal used
internationally (6000 kcal/kg) to maintain uniformity. The figures in brackets are the actual per capita
consumption based on Indian coal with a calorific value of 4000 kcal/kg.
** Based on numbers estimated in Tables 2.7, 2.12 and 2.15.
Source: IEA (2005), Key World Energy Statistics 2005

the trend lines. They also assume that progress 33. These projections and the scenarios in
in energy efficiency and energy conservation, the next chapter provide broad guidelines to
replacement of non-commercial energy and potential investors, and may supplement their
societal and lifestyle changes will continue as own assessments of the demand levels in various
per historical trends. There are, of course, energy sub-sectors.
opportunities to accelerate or alter the pace of
the trends. The projected energy requirements 34. What are the alternative supply
can be reduced substantially with accelerated options? To what extent can demand be met
improvement in energy efficiency and based on domestic resources? To what extent
conservation, which should be considered as imports would be needed? These questions are
the most important supply options since they addressed in the next chapter.
have the potential to reduce consumption by
20-25%. This is considered when the supply
options are explored later in the report.


Supply Options
Strategies to meet our energy significant, but small compared to our needs
requirement are constrained by country’s and its contribution in terms of energy is
energy resources and import possibilities. likely to remain small. Further, the need to
Unfortunately, India is not well endowed with mitigate environmental and social impact of
natural energy resources. Reserves of oil, gas storage schemes often delays hydro
and Uranium are meagre though we have large development thereby causing huge cost
reserves of thorium. While coal is abundant, it overruns.
is regionally concentrated and is of low calorie
and high ash content, though it has the 3.1 INDIA’S ENERGY RESERVES
advantage of a low sulphur content. The
extractable reserves, based on current extraction 2. India’s Hydro-Carbon Energy Reserves
technology, remain limited. Hydro potential is are summarised in Table 3.1.

Table 3.1
India’s Hydrocarbon Reserves
Production Net Reserve/
Proved Inferred Indicated in Imports in Production Ratio
Resources Unit 2004-05 2004-05 P/Q (P+I)/Q
(P) (I) (Q) (M)
Coal (as on 1.1.2005) Mtoe 38114 48007 15497
Extractable Coal** Mtoe 13489 9600-15650 157 16 86 147-186
Lignite (as on 1.1.2005) Mtoe 1220 3652 5772
Extractable Lignite Mtoe 1220 9 - 136 136
Oil (2005) Mt 786* - - 34 87 23 23
Gas (2005) Mtoe 1101* - - 29 3 (LNG) 38 38
Coal Bed Methane Mtoe 765 - 1260-2340
In-situ Coal Gasification*** ? ?
* Balance Recoverable Reserves
** Extractable coal from proved reserves has been calculated by considering 90% of geological reserve as mineable
and dividing mineable reserve by Reserve to Production ratio (2.543 has been used in ‘Coal Vision 2025’ for
CIL blocks); and range for extractable coal from prognosticated reserves has been arrived at by taking 70% of
indicated and 40% of Inferred reserve as mineable and dividing mineable reserve by R:P ratios (2.543 for CIL
blocks and 4.7 for non-CIL blocks as per ‘Coal Vision 2025’).
*** From deep seated coal (not included in extractable coal reserves)

Note: Indicated Gas resource includes 320 Mtoe claimed by Reliance Energy but excludes the 360 Mtoe of
reserves indicated by GSPCL as the same have not yet been certified by DGH.

Source: Respective Line Ministries

Integrated Energy Policy

COAL SUPPLY SCENARIO sequestration could be eligible for carbon

credits. Finally, using this process at abandoned
3. Proved reserves of coal, the most coalmines might provide an economically
abundant energy resource, at the current level attractive option for full extraction of energy
of consumption can last for about 80 years. If from in-place reserves. Clearly, the potential
all the inferred reserves also materialise then for domestic energy supply based on in-situ
coal and lignite can last for over 140 years at coal gasification can be large but it has not yet
the current rate of extraction. Of course, coal been assessed.
and lignite consumption will increase in the
future and the reserves would last for far fewer
years. If domestic coal production continues to
grow at 5% per year, the total (including 5. The reserves of crude oil are merely
proven, indicated and inferred) extractable coal 786Mt. These can sustain the current level of
reserves will run out in around 45 years. production for 23 years and are less than only
However, only about 45% of the potential 7 years worth of our level of consumption in
coal bearing area has currently been covered 2004-05. There has been no significant step up
by regional surveys. Further, it is felt that in crude oil reserves during the last decade in
both regional as well as detailed drilling can be spite of large investments in exploration
made more comprehensive. Covering all coal activities (see Table 3.2). The country has not
bearing areas with comprehensive regional and had any significant oil find since the Bombay
detailed drilling could make a significant High fields, more than 28 years ago. As a
difference to the estimated life of India’s coal result, crude oil production has stagnated and
reserves. The problem with coal remains finding the gap between the demand and domestic
a way to raise the proportion of extractable availability of crude oil is widening. Import
reserves, ensure adequate production and take dependence will keep rising, unless dramatic
care of the environmental impact of production new discoveries are made. Only one third of
and use. the potential oil bearing area has been explored
so far. The reluctance of international majors
4. In-situ coal gasification can significantly to explore in India seen in the past, seems to
increase the extractable energy from India’s have changed following the high success rate in
vast in-place coal reserves. This is so because gas discovery achieved by relatively small
in-situ coal gasification can tap energy from international players. They have shown much
coal reserves that cannot be extracted greater interest in the latest round of bidding
economically based on available open cast/ for exploration blocks under the new
underground extraction technologies. However, exploration licensing policy (NELP). Also,
in-situ gasification has not yet been deployed some geologists predict vast amount of
commercially anywhere in the world. ONGC undiscovered oil in India. What it may require
is engaged in trials to establish the feasibility is development of technology to overcome
and economics of this technology for Indian geological barriers for deep drilling both above
coal and lignite in collaboration with Russia. ground and under sea. In any case India’s
Neyveli Lignite Corporation has tied up with supply strategy while stepping up exploration
an Australian group to pursue in-situ should not rely on the possibility of finding oil
gasification of lignite. In-situ gasification has domestically.
many environmental advantages. The problems
of overburden removal and ash disposal faced 6. The situation was similar in the case of
by conventional coal mining and use are natural gas reserves till 2001-02 before the
eliminated. Gasification is the first step towards discovery of gas in Krishna-Godavari basin by
a clean coal technology since carbon can be Reliance. Coupled with the recent large
captured from the syn-gas produced and discovery of natural gas claimed by Gujarat
sequestered in the mine or pumped back in oil State Petroleum Corporation (GSPC), these
or gas fields to enhance oil or gas recovery. In- finds have added to the gas reserves
situ coal gasification, with or without carbon substantially. However, the size of the reserve

Supply Options

of the GSPC find is yet to be certified by the MW of the Pressurised Heavy Water Reactors
Directorate General of Hydrocarbons (DGH). (PHWR). Further, India is extracting Uranium
from extremely low grade ores (as low as 0.1%
7. The Directorate General of Uranium) compared to ores with up to 12-14%
Hydrocarbons has estimated the country’s Uranium in certain resources abroad. This
resource base for Coal Bed Methane (CBM) to makes Indian nuclear fuel 2-3 times costlier
be between 1400 BCM (1260 Mtoe) and 2600 than international supplies. The substantial
BCM (2340 Mtoe). To give impetus to Thorium reserves can be used but that requires
exploration and production, the government that the fertile Thorium be converted to fissile
has formulated the CBM policy. Based on two material. In this context, a three-stage nuclear
rounds of bidding under this policy, contracts power programme is envisaged. This
have been signed with PSUs/private companies programme consists of setting up of Pressurised
for the exploration and production of CBM in Heavy Water Reactors (PHWRs) in the first
13 blocks. An additional three blocks have stage, Fast Breeder Reactors (FBRs) in the
been taken up for development on the basis of second stage and reactors based on the Uranium
nomination. The estimated investment in these 233-Thorium 232 cycle in the third stage. It is
blocks is about Rs.560 crore and the likely also envisaged that in the first stage of the
CBM resources generated is estimated as 850 programme, capacity addition will be
BCM (765 Mtoe). ONGC maintains that supplemented by electricity generation through
commercial production of CBM from some of Light Water Reactors (LWRs), initially through
these blocks will start in 2007. Thus, at the imports of technology but with the long-term
very low current rate of production, the proven objective of indigenisation. PHWR technology
gas and CBM reserves, together, can last for was selected for the first stage as these reactors
some 50 years. are efficient users of natural Uranium for
yielding the plutonium fuel required for the
second stage FBR programme. The FBRs will
be fuelled by plutonium and will also recycle
8. India is poorly endowed with Uranium. spent Uranium from the PHWR to breed
Available Uranium supply can fuel only 10,000 more plutonium fuel for electricity generation.

Table 3.2
Reserves/Production of Crude Oil & Natural Gas
Year Crude Oil (Mt) Natural Gas (BCM)
Reserves* Production Reserves* Production
1970-71 128 6.9 62 1.4
1980-81 366 10.5 351 2.4
1990-91 739 32.2 686 18.0
2000-01 703 32.4 760 29.5
2001-02 732 32.0 763 29.7
2002-03 741 33.0 751 31.4
2003-04 761 33.4 853 32.0
2004-05 739 33.9 923 31.8
2005-06(p) 786 33.2 1101 32.2
(p) Provisional
* Reserves position as on 1st April of commencing year
Source: Ministry of Petroleum & Natural Gas

Integrated Energy Policy

Thorium as blanket material in FBRs will for the Thorium-based Stage Three of India’s
produce Uranium 233 to fire the third stage. nuclear power programme. Table 3.3 shows
the potential of nuclear energy with domestic
9. The first stage programme of PHWR resources in the country.
technology has reached maturity, though much
later than was initially expected. A beginning 11. The pace of development of nuclear
has been made in the introduction of LWRs power is constrained by the rate at which
with the inter-governmental agreement between plutonium can be bred and Thorium converted
India and the Russian Federation for to fissile material. If India is able to import
cooperation in setting up of 2x1,000 Megawatt nuclear fuel, the process can be accelerated.
Electrical (MWe) LWRs at Kudankulam, Tamil Two possible growth paths of nuclear power
Nadu. A 40 MWt Fast Breeder Test Reactor are summarised in Table 3.4.
(FBTR) was set-up in 1985 at Kalpakkam to
gain experience in the technology under the RENEWABLE ENERGY RESOURCES
second phase. This has been followed by
progress in the development of technology for 12. Given the limited amount of domestic
the first Prototype Fast Breeder Reactor (PFBR) conventional energy sources, renewable energy
of 500 MWe capacity. Such a plant is currently resources gain significance in the Indian context.
under construction. Research and development India’s renewable energy resources are
on the utilisation of Thorium is also in progress. summarised in Table 3.5. It may be noted that
many renewables require land. The potential
10. FBR technology is critical to developing energy generated is assessed independently for
stage two of India’s nuclear power programme. each option. If all such options are developed
Without developing the wide-scale use of FBR together the combined potential may be less
technology, India will find it difficult to go than the sum due to a paucity of available land
beyond 10,000 MWe nuclear capacity based on for energy generation as other competing land
known indigenous Uranium resources. Use of uses may dominate.
FBR technology would enable indigenous
Uranium resources to support a 20,000 MWe HYDROELECTRICITY
nuclear power programme by the year 2020. 13. India’s hydel resources are estimated to
Such a FBR programme is critical to developing be 84,000 MW at 60% load factor. The current
the Thorium-based third stage of India’s nuclear utility based installed capacity is 32,326 MW
power programme. The Bhabha Atomic and the average annual generation over the last
Research Centre (BARC) is also engaged in three years (2002-05) was 74 Billion Kilowatt
R&D activities to develop an Advanced Heavy hours (BkWh) giving a load factor of 29%. At
Water Reactor of 300 MWe capacity that would such a load factor an installed capacity of
provide industrial scale experience necessary 1,50,000 MW including some 15,000 MW of

Table 3.3
The Approximate Potential Available From Nuclear Energy
Particulars Amount Thermal Energy Electricity
TWh GW-yr. GWe-Yr. MWe
Uranium-Metal 61,000-t
In PHWR 7,992 913 330 10,000
In FBR 1,027,616 117,308 42,200 5,00,000
Thorium-Metal 2,25,000-t
In Breeders 3,783,886 431,950 1,50,000 Very large
Source: Department of Atomic Energy

Supply Options

Table 3.4
Possible Development of Nuclear Power Installed Capacity in MW
Year Unit Scenario Remarks
Optimistic* Pessimistic
2010 GWe 11 9 These estimates assume that the FBR technology is
successfully demonstrated by the 500 MW PFBR
2020 GWe 29 21 currently under construction, new Uranium mines are
2030 GWe 63 48 opened for providing fuel for setting up additional
PHWRs, India succeeds in assimilating the LWR
2040 GWe 131 104 technology through import and develops the Advanced
Heavy Water Reactor for utilising Thorium by 2020.
2050 GWe 275 208
* It is assumed that India will be able to import 8,000 MW of Light Water Reactors with fuel over
the next ten years.
Source: Department of Atomic Energy

Table 3.5
Renewable Energy Resources
Resources Unit Present Potential Basis of Accessing Potential
Hydro-power MW 32,326 1,50,000 Total potential assessed is 84,000 MW** at
60% load factor or 1,50,000 MW at lower
load factors
Wood Mtoe/year 140 620* Using 60 million Ha wasteland yielding (20)
0.6** 4 In 12 million family sized plants
Biogas Mtoe/year 0.1 15 In community based plants if most of the
dung is put through them.
Bio-diesel Mtoe/year - 20* Through plantation of 20* million hectares of
wasteland or 7* million hectares of intensive
Ethanol Mtoe/year <1 10 From 1.2 million hectares of intensive
cultivation with required inputs.
Photovoltaic Mtoe/year - 1,200 Expected by utilising 5 million hectares
wasteland at an efficiency level of 15 percent
for Solar Photovoltaic Cells
Thermal Mtoe/year 1,200 MWe scale power plants using 5 million
Wind Energy Mtoe/year <1 10 Onshore potential of 65,000 MWe at 20
percent load factor
Small Hydro-power Mtoe/year <1 5

* The availability of land and inputs for getting projected yields is a critical constraint
** based on 50 percent plants under use
Source: Respective Line Ministries

Integrated Energy Policy

small hydel plants (size <25 MW) may be this, wind power, especially at the lagging ends
justified given the available potential of the grid, provides several benefits and should
hydroelectric energy. All new projects should be pursued wherever it is viable.
be designed with this objective in mind. Such
a strategy would ensure that hydro is maximally BIOMASS, BIOGAS AND BIO-FUELS
used for meeting peak loads. Undeveloped
hydro potential is mainly concentrated in the 16. Biomass is the major domestic fuel used
North East, Himachal and Uttaranchal. In for cooking, and consists mainly of agricultural
addition there are possibilities of importing by-products and gathered wood. Domestic
hydropower from Nepal and Bhutan whose biomass use in 2000 was 80 Mtoe. Along with
combined economically feasible potentials is dung cakes which provided 30 Mtoe, biomass
estimated to be in excess of 55,000 MW. based fuels provide 81% of domestic energy.
Biomass is also used as industrial fuel by small
14. The accelerated hydro development plan industries in the unorganised sector and by
aims to build 50,000 MW of new capacity by cottage industries. Inclusive of such use biomass
2025-26. Out of this, 25690 MW are to be along with dung cakes accounts for almost a third
installed in Arunachal Pradesh. Problems of of India’s total primary energy consumption.
environment and ecology, and the social This non-commercial energy for the domestic
problems of resettlement of project-affected use is essentially managed by women without
people have delayed development of hydro technology, or investment, and involves
projects, particularly those that involve large unsustainable practises, backbreaking drudgery,
storage dams. Of the 50,000 MW planned, 31,000 health problems especially for women and the
MW shall come from run of the river (ROR) girl child and likely environmental damage. What
schemes where these problems are more needs to be done to make this energy resource
manageable. However, the available energy more sustainable is to improve the efficiency and
varies from month to month and peaking convenience of using biomass through, for
capacity is minimal. It is estimated that 19,660 example, wood gasification or biogas plants.
MW of ROR schemes generate 2 BkWh of energy Rural people aspire to have clean and convenient
in a lean month and 13 BkWh in a high inflow fuel just like their urban counterparts. Though
month, giving load factors of 14% to 90%. falling in its share of the total energy mix, biomass
dependence shall continue to rise in absolute
terms, and biomass will remain a part of India’s
energy supply scene till 2031-32 and beyond. As
15. Onshore wind energy potential is such, a technology mission for enhanced and
estimated to be around 45,000 MW. Currently, efficient use of biomass/bio-fuels is highly
it is claimed that Indian wind farms deliver a desirable.
capacity factor of about 17% on average. As a
first level of approximation, this permits a 17. India has a 40 year old biogas
grid-connected wind capacity estimate of as programme. The total number of family size
much as 20,000 MW at the current size of biogas plants installed is 3.7 million, though
India’s grid. The actual grid connected wind evaluation studies show that only half of these
capacity, however, is only about 3,600 MW. are in use. Community based plants can process
This reflects both a poor exploitation of claimed dung from households with less than the 3-5
potential and, perhaps, the exaggerated claims animals that are required for a family sized
of capacity factors. Even if one goes by a wind plant and can also use any excess gas available
potential of 65,000 MW (as estimated by the from family sized plants. Managing a
Wind Power Society) inclusive of off-shore community sized plant in an incentive
potential and further assumes that technological compatible way that ensures voluntary
innovations will raise capacity factors to 20%, cooperation of all stakeholders is admittedly
the total contribution of wind energy to India’s challenging but is very much possible and
energy mix will remain below 10 Mtoe. Despite worth pursuing (Parikh and Parikh, 1977)3.
Parikh Jyoti K. and Parikh K.S. (1977) “Mobilisation and Impacts of Biogas Technologies“, Energy, Vol.
2 pp. 441-445, 1977

Supply Options

18. Biomass could become a major energy land for crops to produce cellulosic ethanol
source if fuel wood plantations are developed. constitutes an attractive option to farmers,
This requires land, which may have other adequate quantity of ethanol could then be
competing uses. In fact, biomass, bio-fuels available to blend petrol with 10% or higher
(vegetable, edible and non-edible oils and concentration of ethanol. At present ethanol
ethanol) and solar energy on sizeable scale all as a transport fuel can make some contribution
require large amounts of land. The potential but is not likely to constitute a major option.
energy generated is shown in Table 3.5. At
appropriate relative prices, farmers may SOLAR-ENERGY
themselves decide to use their land for
producing energy. Clearly, Table 3.5 shows 21. Solar energy has a large potential in
that wood plantations offer the best option for the country. The average solar insolation in
biomass based supply sources along with the country is 6 kWh/meter2/day. This can be
possessing a huge employment generation exploited by many direct thermal applications
potential. Wood gasification or direct such as for cooking, heating or in photovoltaic
combustion are possible options for power cells that directly convert sunlight to electricity.
generation based on such biomass. The The present conversion efficiency of
economics would depend on actual yields from commercially available photovoltaic cells is less
the wood plantations. than 15 percent. With this efficiency the
potential of covering just 5 million hectares of
land with photovoltaic cells is 1200 Mtoe/
19. Bio-diesel is a natural diesel substitute.
year. Photovoltaic technology is proven but
While bio-diesel from non-edible oils such as
expensive and the cost of electricity exceeds
Jatropha, Karanj, Mahua etc., has attracted lot
Rs.20/kWh at present. Potential to reduce costs
of attention recently, its economic feasibility
and increase efficiency exists and a technology
depends largely on the yields one can get from
mission for this purpose is highly desirable.
wasteland and/or the returns one can get from
good quality land with irrigation and fertiliser
22. Solar thermal generation is economical
use compared to returns from growing other
for water heating for both households and
crops. A number of projects being undertaken
industrial use. Much of its potential has yet to
now will provide an assessment of these
be exploited. Appropriate policies need to be
comparative returns in a few years. Bio-diesel
designed to accelerate the exploitation of this
also provides decentralised local fuel, which
energy source. Solar thermal generation has
can be used directly without esterification in
not found acceptance globally, though the
stationery engines. The process of bio-diesel
potential to use it in hybrid systems may be
generation and use can also create significant
employment. These benefits should be factored
in while assessing the desirability of bio-diesel
when the data on land productivity are HYDROGEN
available. 23. Hydrogen is seen as the new energy
carrier. Development of Hydrogen technology
20. Ethanol is used extensively in Brazil as is being pursued in many countries. India has
a fuel for cars. In the Indian situation of also set up a Hydrogen Development Board to
scarcity of land and water, the available promote development of technologies for
quantities of ethanol, when used as feedstock producing, transporting, storing and
for production of chemicals and potable distributing hydrogen as well as to explore the
alcohol, offer higher economic and opportunity field of fuel cells for efficient end-use of
costs to the country rather than its use as an hydrogen. Hydrogen can also be burnt directly
admixture with gasoline. If technology can be in internal combustion engines. It can be
developed to economically collect and convert produced from hydrocarbons and biomass, by
crop residues such as rice straws (which are splitting water with the use of solar, hydro,
currently burnt) or if intensive cultivation of wind or nuclear energy, and through certain

Integrated Energy Policy

microbial processes. The overall efficiency of on the full development of hydro and nuclear
the hydrogen cycle, however, remains in doubt. potential of the country and the use of gas to
Hydrogen production, liquefaction or the extent of 16%. Possible fuel-wise
compression, transportation, storage and final substitution should be taken into account in
dispensation, all entail huge amount of energy considering supply options. With respect to oil
consumption and loss. Significant barriers for transport use, it cannot easily be replaced
relating to financial and technological viability in significant quantities unless there are
remain in the widespread use of hydrogen in technological breakthroughs or large-scale shifts
automotive or stationary applications. Metal to public transport in place of personal vehicles
hydrides that store hydrogen and release it for or to freight movement by railroads in place of
direct combustion have been developed for trucks. Other than for power generation
powering two/three-wheelers in the country demand for natural gas is in the production of
but the technology has not yet been fertilisers and chemicals where it cannot be
commercialised. Stationary applications or economically substituted. With coal and natural
automotive applications using fuel cells are still gas there is a clear substitution possibility.
relatively uncompetitive. Such a substitution will depend on the relative
availability and price of coal/gas.
27. To explore the consequences of
24. Another emerging technology of different alternatives and their quantitative
interest is the liquefaction of coal. South Africa significance a number of scenarios have been
leads the world in this technology based on the developed using a multi-sectoral, multi period
Sasol process. Some 6 tonnes of relatively high optimising linear programming model4. These
quality (5500+ kcal/kg) coal is required to scenarios are described in Table 3.6. They are
produce one tonne of liquid fuel. The designed to assess the importance of critical
technology was commercially proven in South policy options for meeting energy requirements.
Africa and has been in use there for a number These scenarios are designed to map out
of decades. At current prices of oil, this extreme points of feasible options and none
technology may be viable even for Indian coals of them should be looked upon as a preferred
and should be pursued. scenario.
25. Among new energy resources that have 28. The linear programming model used
yet to be proved are gas hydrates and nuclear above obtains the least-cost solution subject to
fusion. India has large deposits of gas hydrates constraints over ten 5-year periods from 2000
(methane gas trapped inside ice) off her coasts. till 2050. It also has sub-periods characterising
The technology to exploit it is yet to be peak, intermediate and base load during
developed. Fusion power which requires fuels summer and winter seasons. Power demand is
that can be obtained from sea water offers characterised for three regions: (a) near coal
virtually unlimited power. The technology of mines, (b) distant coastal regions and (c) the
controlled fusion with positive energy gain in rest. Options at distant coastal regions include
an economic way is also yet to be developed. transmission from pithead plants and load
These two energy sources are not likely to be centre based generation using domestic coal
available commercially in the next 25 years. or imported coal. The amount of pithead
generation is restricted due to environmental
3.2 SUPPLY SCENARIOS reasons. In the case of hydro, India’s full
26. Table 2.12 in Chapter II outlines one potential of 1,50,000 MW is taken as exploited
possible energy mix scenario. This scenario by 2031-32. Nuclear capacity of 63,000 MW is
assumes that electricity generation will be based assumed to be realised by 2031-32. As regards

The model developed by Observer Research Foundation (ORF) was upgraded and the scenarios developed
under the guidance of Dr. Kirit Parikh by a team from ORF.

Supply Options

Table 3.6
Some Energy Supply Scenarios for 8% GDP Growth
Scenario Description
1. Coal-Based Development Most electricity generation by the most economical option –
which turns out to be primarily coal.
2. Maximise Nuclear Assumes nuclear development as per the optimistic scenario of
Table 3.4.
3. Forced Hydro Development of the entire (1,50,000 MW) domestic hydro
potential by 2031-32.
4. Maximise Hydro & Nuclear Both nuclear and hydro as in 2 and 3.
5. ‘4’ plus forced Natural Gas 16% of electricity generation from gas. This is comparable to
the scenario of Table 2.7 & 2.12.
6. ‘5’ plus Demand Side Demand side management reduces electricity demand by
Management 15 percent.
7. ‘5’ plus Higher Coal Power *Thermal Efficiency of future coal power plants increased to
Plant Efficiency 38-40 percent for super critical boilers. from 36 percent for
the present 500 MW
8. ‘6’ plus Coal Power Plant Both DSM and coal efficiency together.
9. ‘8’ plus higher freight share Railways freight share increased from 32 percent to
of Railways 50 percent.
10. ‘9’ plus vehicle efficiency Fuel efficiency of all motorised vehicles increased by
increased 50 percent.
11. ‘10’ plus renewables 30,000 MW wind power, 10,000 MW of solar power, 50,000
MW of biomass power, 10 Mt of bio-diesel, and 5 Mt of
ethanol by 2031-32.
* Thermal efficiency of coal-based plants refers to gross thermal efficiency based on gross generation
and is equal to the ratio of gross heat output to gross heat input.

gas, the model is forced to have a 16% share 1,50,000 MW of hydel by 2031-32 is estimated,
for gas-based power generation by 2031-32. A it does not mean that given the various social,
model scenario critically depends on the set of political and environmental constraints we will
assumptions, parameters and constraints, and in fact fully develop our hydel resources to
in particular on the relative costs and prices reach this estimate. The scenario does,
of the alternatives available, the discount rate however, show what the implications are for
and the projected requirements. Requirements energy supply if we were able to develop the
have been specified in terms of billion units full hydro potential. Table 3.7 summarises the
of electricity, billion tonne-kilometre of freight results of the scenarios. Figure 3.1 shows this
traffic, and billion passenger-kilometre of graphically. Period-wise details for three
passenger traffic. The freight and passenger selected scenarios are given in Figures 3.2 to
traffic projections have been made using 3.4.
elasticities with respect to GDP of 1.0 and
0.8, estimated using time series data from 1930 3.3 IMPLICATIONS OF THE
to 2000. The “optimality” of the solution is RESULTS OF THE SCENARIOS
contingent on the various inputs/assumptions
detailed herein. The importance of the model 29. The results provide us insights on
is that each solution provides a consistent aggregate energy needs and required imports,
scenario. It should be noted that the model energy supply options, the importance of
does not suggest preferred scenarios. They are energy efficiency and demand side management,
in fact extreme options to define the feasible the range of carbon emissions, and investment
space for alternate policy choices. Thus when needs. We look at these in turn.

Integrated Energy Policy

Figure 3.1
Fuel Mix Comparison in Year 2031-32

Figure 3.2
Coal Dominant Scenario 1 - Fuel Mix Year-Wise

Supply Options

Figure 3.3
Forced Hydro, Nuclear and Gas Scenario 5 - Fuel Mix Year-Wise

Figure 3.4
Forced Renewables Scenario 11 - Fuel Mix Year Wise

Table 3.7
Scenario Summaries for 8% GDP Growth — Fuel Mix in Year 2031-32
Mt of Oil Equivalent (Mtoe)
Scenario No. 1 2 3 4 5 6 7 8 9 10 11
Scenario Coal Forced Forced Forced Forced Forced Forced Forced Forced Nuc+ Forced Scenario
Description Dominant Hydro Nuclear Nuclear+ Nuc+Hyd Nuc+Hyd+ Nuc+Hyd+ Nuc+Hyd+ Hyd+GAS+ Nuc+Hyd+ 10+Forced
Case Hydro + GAS GAS+ DSM GAS+ GAS+ DSM+ DSM+ GAS+DSM Renewables
Coal eff. Coal eff. Coal eff.+ +Coal eff.
Rail share up +Rail share
Integrated Energy Policy

Crude Oil 486 485 486 485 486 486 485 485 447 361 350
Natural Gas 104 105 104 105 197 174 191 171 171 171 150
Coal 1,022 953 998 929 835 715 818 698 701 707 632
Hydro 13 35 13 35 35 35 35 35 35 35 35
Nuclear 76 76 98 98 98 98 98 98 98 98 98
Renewables 2 2 2 2 2 2 2 2 2 2 87
Non-commercial 185 185 185 185 185 185 185 185 185 185 185
Total 1,887 1,840 1,885 1,839 1,837 1,695 1,813 1,673 1,639 1,558 1,536
Total without 1,702 1,655 1,700 1,654 1,652 1,510 1,628 1,488 1,454 1,373 1,351
Crude Oil 25.7% 26.4% 25.8% 26.4% 26.4% 28.7% 26.8% 29.0% 27.3% 23.2% 22.8%
Natural Gas 5.5% 5.7% 5.5% 5.7% 10.7% 10.3% 10.5% 10.2% 10.5% 11.0% 9.8%
Coal 54.1% 51.8% 52.9% 50.5% 45.5% 42.2% 45.1% 41.7% 42.8% 45.4% 41.1%
Hydro 0.7% 1.9% 0.7% 1.9% 1.9% 2.0% 1.9% 2.1% 2.1% 2.2% 2.2%
Nuclear 4.0% 4.1% 5.2% 5.3% 5.3% 5.8% 5.4% 5.9% 6.0% 6.3% 6.4%
Renewables 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 5.6%
Non-Commercial 9.8% 10.1% 9.8% 10.1% 10.1% 10.9% 10.2% 11.1% 11.3% 11.9% 12.0%
Total 100 100 100 100 100 100 100 100 100 100 100
Supply Options

3.3.1 AGGREGATE ENERGY NEEDS AND by our ability to successfully use our ample
IMPORTS DEPENDENCE domestic resources. The main hurdle could be
an inability to expand production at the needed
30. Based on the various scenarios pace, environmental constraints due to
developed the total commercial energy attendant deforestation and the social problem
requirement for India in 2031-32 varies from a of resettlement of project affected people. At a
low of 1351 Mtoe to a high of 1702 Mtoe. This modest growth rate of production of 5.5 percent
level of commercial energy requirement entails per year - a rate slightly higher than what has
an annual growth of 5.2% to 6.1% over the been achieved over the previous 25 years - the
commercial energy supply level in 2003-04 to production of coal and lignite by 2031-32 will
sustain an 8% growth rate of GDP. The total be around 1400 Mt. Based on these assumptions,
primary energy requirement in 2031-32 varies our import needs for the various scenarios will
from a low of 1536 Mtoe to a high of 1887 be as shown in Table 3.8. Thus, with an 8%
Mtoe. This yields an annual growth in total GDP growth rate an import dependence for
primary energy requirement of 4.3% to 5.1% energy in 2031-32 could be as low as 29 percent
over the 2003-04 level to sustain a GDP growth and as high as 59 percent. Increasing coal
of 8% per annum. production and associated infrastructure of
transport, as well as improving energy use
31. The modelled scenarios help us in efficiency in generation and use are critical if
assessing the significance of various options. we are to reduce our dependence on imported
They also suggest our likely dependence on energy.
energy imports. The level of imports depend
on the level of domestic production. Given 3.3.2 ENERGY SUPPLY OPTIONS
our resources shown in Table 3.1, domestic
production of oil and gas will depend critically 32. The major choices are use of alternative
on new finds. If we don’t make major new fuels in the power sector and in modes of
discoveries, our production can increase only transport. Table 3.9 shows the generation
marginally. We can only guess what the capacities in scenario 11 (renewables scenario)
production will be and be ready for the worst. from different sources and the load factor for
Thus we assume that we can produce by 2031- each type of plants for the year 2031-32. This
32 only 35 Mtoe of oil per year and around is an extreme scenario where all options for
100 Mtoe of natural gas including coal bed power generation other than coal, are pushed
methane. Our production of coal is constrained to their limits. We have also assumed high

Table 3.8
Ranges of Commercial Energy Requirement, Domestic Production and Imports for
8 percent Growth for year 2031-32
Fuel Range of Assumed Range of Import
Requirement in Domestic Imports* (Percent)
Scenarios Production
(R) (P) (I) (I/R)
Oil (Mt) 350–486 35 315–451 90–93
Natural Gas (Mtoe) 100–197 100 0-97 0-49
including CBM
Coal (Mtoe) 632-1022 560 72-462 11-45
TCPES 1351-1702 — 387-1010 29-59
*Range of imports is calculated across all scenarios as follows:
Lower bound =Minimum requirement – Maximum domestic production
Upper bound = Maximum requirement – Minimum domestic production

Integrated Energy Policy

Table 3.9
Generation Capacities and Load Factors in Scenario 11
Source Capacity (MW) Plant Load Factor (%)
Coal 269997 67
Natural Gas 69815 27
Coal Bed Methane 27778 36
In-situ Coal Gas 22222 36
Nuclear 63060 68
Hydro 150153 30
IGCC Pet coke 3137 68
Wind – Onshore 32141 20
Wind – Off-shore 1200 25
Biomass Gasification 1200 75
Biomass combustion 50000 70
Solar 10000 17.5
Total 700703 50

plant load factors for biomass gasification and major resource, i.e. coal. Coal is the
combustion, and somewhat lower factors for most abundant domestically available
conventional plants. It gives the minimum coal primary energy resource other than
requirement. thorium and solar insolation. In the
“coal-based development” scenario, the
33. It is seen that even under scenario 11, total demand for coal increases from
coal is the dominant fuel with a share of 51% 172 Mtoe in 2004-05 to 1022 Mtoe in
in electricity generation and a share of over 2031-32. Measured in Mt of Indian coal
41% in the energy mix. Gas-based generation with 4000 kcal/kg, the requirement of
constitutes only 11% of electricity generation coal will thus increase from 406 Mt in
capacity in scenario 11. The capacity factor of 2004-05 to 2555 Mt in 2031-32. The
gas plants remains 31% showing that they are quality of Indian coal is deteriorating
mainly used for peaking. Scenarios were also progressively. A 5% deterioration over
generated with alternative prices of natural gas the next 25 years would raise the coal
and it is found that natural gas is not selected requirement to 2689 Mt by 2031-32 in
when the gas price is US$ 4.5 per MMBtu or terms of Indian coal. This order of
higher even for peaking power as long as the increase may call for a massive rise in
coal price remains at or below US$ 2.27 per coal imports unless domestic
MMBtu (i.e. $45 per tonne of imported coal production increases correspondingly.
with 6000 kcal/kg). The low load factor for This would increase our energy
hydro plants is an outcome of the limited dependency on imports. Additionally,
availability of hydro energy. since use of coal is associated with the
environmental problems of mining and
34. The results of the scenarios in the local air pollution, apart from CO2
context of the brief review of energy resources emission; coal use must be accompanied
show the following: by appropriate environmental measures
and use of clean coal technologies. Even
(a) Any supply strategy over the coming
under the least coal intensive option,
decades will have to emphasise India’s

Supply Options

domestic coal production would need one of the lowest in the world and
to rise to 1580 Million Tonnes. compares poorly with the
(b) A massive effort is clearly needed to corresponding levels of 1964 m /capita
expand domestic coal production. and 1111 m3/capita in the US and
Given that, at present, coal mines take China respectively.
8 years to develop and Coal India suffers (e) States that are well endowed with coal
from several problems, it is doubtful and/or hydro resources have been
that Coal India can meet this need. increasingly demanding a greater share
Opening up the coal sector to private of the benefits to the nation from
mining and use of the best technology exploiting these resources. This is an
are unavoidable. Captive mining as urgent issue and must be taken up at
permitted at present alone will not the National Development Council
suffice. We must build a consensus to (NDC) level to avoid delays and
allow changes in the coal sector to additional costs in fully exploiting these
happen sooner rather than later. In domestic energy resources.
any event, massive investments would (f) Though nuclear energy can make only
be needed to enhance the rail a modest contribution over the next 25
infrastructure to move large quantities years, longer term consideration of even
of domestic coal. Alternate coastal/ a modest degree of energy self-
river transportation of coal may also sufficiency suggests the need to pursue
have to be pursued aggressively. the development of nuclear power using
(c) As seen from Table 3.8 high quality Thorium. Despite the many delays and
coal (6000 kcal/kg) import needs could disappointments in achieving set targets
range from 120 million tonnes to 770 of nuclear energy development in the
million tonnes by 2031-32. To put this past, this is an option we cannot afford
in perspective, currently less than a not to pursue. Today the PHWR is
billion tonnes of high quality coal economically competitive with coal-
equivalent is traded internationally out based plants at certain locations.
of a production of about 4.8 billion (g) If the import of 6,000 MWe of LWR
tonnes of equivalent high quality coal. reactors does not materialise, the
This will require the development of installed nuclear capacity by 2031-32
appropriate port infrastructure as well will be 48,000 MW instead of 63,000
as the development of end-use (power, MW. The impact on the various
steel and cement) at coastal locations scenarios will, however, be marginal
to avoid double handling and inland and none of the policy conclusion
transportation of imported coal. would be affected. We have not
(d) Development of hydropower as a clean depended on large scale import of
power source has to be given due LWRs due to the uncertainties
priority. Full development of hydro involved. Imported LWRs could be an
potential while technically feasible, will important option if the FBR and
require timely resolution of issues of Thorium reactor routes not materialise
water rights, resettlement of project or are found to be uneconomical.
affected people and environmental Energy security concerns may leave us
concerns. These issues can be and must no option other than full pursuit of
be resolved satisfactorily. The irrigation the FBR and Thorium routes.
and flood control benefits of hydro- (h) The optimistic nuclear development
power and its operational flexibility scenario as envisaged is contingent on
can justify the higher costs of hydel 6,000 MW of additional import of
plants. It is pointed out that India LWRs whose plutonium could be used
needs to create water storage capacity. in FBRs along with the plutonium
Its storage per capita at 207m3/capita is from the 10,000 MWe reactors using

Integrated Energy Policy

our own Uranium. Import of the (l) A disturbing fact that emerges from
additional 6,000 MW of LWRs (and the study of various scenario is that
associated fuel) depends upon the even if India somehow succeeds in
handful of countries constituting the raising the contribution of renewable
Nuclear Suppliers’ Group (NSG). If energy by over 40 times by 2031-32
the sanctions by the NSG are removed inclusive of a renewable power capacity
and India is able to import Uranium of 1,00,000 MW (compared to 6,161
and nuclear power plants, nuclear MW as on March 2005); the
power can play a much bigger role in contribution of renewables to our
the power sector. The capacity growth energy mix will not go beyond 5.6%
then would not be constrained by Table of total energy required in 2031-32.
3.4. However, if energy security This is consistent with various
concerns are our primary driver projections worldwide that shows that
towards nuclear, then import of LWRs, the fossil fuel dependence of the world
even though more economical, may as a whole will continue to rise till
have to be limited to restrict our 2031-32.
dependence on energy imports.
(i) Full development of hydro potential 3.3.3 ENERGY EFFICIENCY AND DEMAND
and realisation of the optimistic nuclear SIDE MANAGEMENT
scenario by 2031-32 reduce coal
requirement by some 93 Mtoe (232 Mt 35. India’s conventional energy reserves are
of Indian coal) from the level of 1022 limited and we must develop all available and
Mtoe projected in the coal dominant economic alternatives. Simultaneously, a major
scenario. This scenario implies total stress must be laid on energy efficiency and
electricity generation capacity of conservation, with particular emphasis on
7,75,500 MW in 2031-32 of which efficiency of electricity generation, transmission,
hydro capacity will be 1,50,000 MW, distribution and end-use. Clearly, over the next
and nuclear capacity will need to 25 years energy efficiency and conservation are
expand from the present 3,660 MW to the most important virtual energy supply
63,000 MW. sources that India possesses.
(j) If we assume no dramatic new finds of (a) India cannot deliver sustained 8%
oil occur in the country, our oil imports growth over the next 25 years without
will be around 315 to 451 Mt in 2031- energy and water, and these two
32. This is about four to five times of together shall, in turn, pose the biggest
what we import today. Assuming that constraints to India’s growth. The
world trade over this period will grow energy intensity of our growth has
from 2.4 billion tonne (Bt) today to 4 been falling and is about half what it
Bt by that time, India’s imports will used to be in the early seventies but
constitute 7.9 to 11.3 percent of global there is significant room to improve.
trade. In 2003 India consumed 0.16 kilogram
(k) Gas does not emerge as a major fuel in of oil equivalent per dollar of GDP
any of the scenarios. The share of gas expressed in purchasing parity terms.
in the energy mix remains below 11%. This compares to 0.23 in China, 0.22
Even when gas is pushed for power in US and a world average of 0.21.
generation, only 16% of the power However there are several countries in
generated comes from gas. This is so Europe and Japan at or below 0.15.
despite the scenarios assuming that One should note that cross country
domestic natural gas supplies will be comparisons are full of pitfalls. For
supplemented with coal-bed methane example, if the share of hydel energy is
and in-situ gasification of coal as well higher in the total energy mix, energy
as with imported LNG. intensity would be lower. Even then,

Supply Options

these comparisons do show that energy options of DSM exist to attain such
intensity can be brought down by 20% reductions. Energy efficiency and DSM
in India with commercially viable should have a very high priority.
technologies currently available and in Policies to promote these are described
use in the developed countries. in Chapter VI.
(b) The most energy efficient scenario from (e) Since domestic oil supply has stagnated
our model shows an aggregate energy at a low level and requirements are
requirement of 1536 Mtoe in 2031. growing, oil use efficiency, conservation
This scenario is 19% more efficient and substitution by other forms of
than the most energy intensive scenario. energy are major options to reduce oil
With a projected population of 1.468 imports. The same is true of gas, though
billion, the per capita total primary the prospects of finding gas look
energy supply (TPES) in the most somewhat brighter. Since no economic
energy efficient scenario comes to 1046 substitutes are obvious for the transport
kgoe/year. This is comparable to sector at least till 2031-32, energy
China’s per capita TPES in 2003. Even efficiency of vehicles and use of mass
in the most energy intensive scenario transport have to have high priority. If
the per capita TPES in 2031-32 is only the energy efficiency of all motorised
1285 kgoe. This compares with the transport vehicles is increased by 50%,
2003 world average per capita energy (an efficiency level that is already
consumption of 1688 kgoe. Thus while achieved in the world today) our oil
the projected total energy requirement requirement will go down by some 86
may look large, it is perhaps not large Mt by 2031-32. If on the other hand
enough for the GDP growth assumed. railways are able to win back the freight
(c) Efficiency of coal power plants traffic they have lost to trucks and
themselves can be improved manage to carry 50 percent of freight
substantially. The average gross billion tonne kilometre (Bt-km), then
efficiency of generation from coal oil requirement can go down by 38
power plants is 30.5%. The best plants Mt. These two initiatives in the
in the world operate with super critical transport sector can, together, reduce
boilers and get gross efficiency of 42%. our oil requirement by over 25% from
Germany is even claiming gross the most oil intensive scenario in 2031-
conversion efficiency of 46%. It should 32.
be possible to get gross efficiency of (f) Urban mass transport is much more
38-40% at an economically attractive fuel efficient per passenger kilometre
cost for all new coal-based plants. This compared to private vehicles. Mass
alone can reduce coal requirement by transport also reduces road congestion
111 Mtoe of coal (278 Mt of Indian and air pollution. Thus development
coal). Thus a very high priority should of urban mass transport systems of
be given to developing or obtaining quality and convenience that can attract
the technology for coal-based plants of passengers will contribute significantly
high efficiency. to energy conservation.
(d) If Demand Side Management (DSM) (g) If both energy efficiency of coal
options are pursued to reduce demand generation and DSM are pursued
for electricity through energy efficient together along with higher freight share
processes, equipment, lighting and by Railways and a push for renewables,
buildings so that electricity demand is coal demand could come down by over
reduced by 15% by 2031-32, a reduction 38% from the coal dominant scenario
of 152 Mtoe (381 Mt of Indian coal) in to 632 Mtoe (1580 Mt of Indian coal).
coal requirement takes place. Studies
have shown that economically attractive 36. All of the above recommendations,

Integrated Energy Policy

Figure 3.5
CO2 Generation Comparison in year 2031-32

resulting from an analysis of the scenarios billion tonnes in the low coal and renewable
studied, are technologically viable. Pursuing dominant scenario. In the US, emissions today
them can lower our energy demand by over are in excess of 5.5 billion tonnes of CO2. In
19%. Failure to deliver on these per capita terms, however, India’s carbon
recommendations could push India into the emissions in 2031-32 will be 2.6 to 3.6 tonnes
international market for coal with a potential of CO2 compared to the 2004 level of over 20
demand equal to over 75% of the current level tonnes in US and a global average of 4.5
of trade. The short to medium term impact of tonnes in 2004.
such an eventuality on coal prices could be
disastrous. That being said, there are indications 3.3.5 IMPLICATIONS FOR INVESTMENT NEEDS
that over the medium term world output of
coal and coal trade is set to increase significantly. 39. Apart from the challenges of physically
supplying different forms of energy discussed
above, the investment requirement also show a
need for purposive action. The electricity
37. Estimates of CO 2 generated from generation, transmission and distribution sector
energy use in different scenarios are shown in alone is estimated to require an investment of
Figure 3.5. Between Scenarios 1 (coal dominant at least Rs.60 trillion in 2005 rupees. The total
scenario) and scenario 11 (with all efficiency energy sector investment could well amount to
and DSM measures and renewables) the Rs.100-110 trillion in 2005 rupees inclusive of
difference is nearly 35%. related infrastructure.

38. The carbon emission implications of 40. An economy growing at 8% should

our scenarios are therefore significant. Annual have little difficulty in mobilising the needed
CO2 emissions could rise from 1 billion tonne resources particularly with public private
at present to 5.5 billion tonnes per year by partnerships. The main challenge, however, is
2031-32 in the high coal use scenario and 3.9 to create efficient and financially viable energy

Supply Options

sub sectors so that investors have the incentives 3.4 ENERGY INDEPENDENCE IN
to invest in a competitive set up where AN ENERGY SCARCE WORLD
consumers interests are simultaneously
protected. 42. World energy supplies are becoming
increasingly constrained. India needs to grow
3.3.6 THE MAIN ACTIONS RECOMMENDED its energy share in a market with sluggish
growth in supply and rising prices. It is assumed
41. Comparisons of energy requirements that the world’s fossil fuel supplies grow by
and our resource base suggest that our 2% per annum. Then India’s share of world
hydrocarbon resources would be grossly supplies of fossil fuels in 2031-32 would rise
inadequate to meet our needs. From a longer from a level of 3.7% to a low of 7.6% in the
term perspective we need to take a number of most energy efficient scenario to 10.9% in the
actions: most energy intensive scenario.
 Relentlessly pursue energy efficiency
and energy conservation as the most 43. President Kalam in his Independence
important virtual source of domestic Day address to the nation in 2005 has called
energy. for achieving energy independence. While
energy security is a major concern for the next
 Institute policies that maximise
25 years, from a longer term perspective energy
domestic coal production.
independence becomes important. What does
 Create coastal infrastructure for import an energy independence scenario look like?
and use of coal. The main challenges are to augment total
 Develop coal transportation domestic energy supply.
infrastructure including alternatives
such as coastal and river movement. 44. Table 3.10 shows the energy supply by
 Develop fully the nuclear and hydro sources for the year 2003-04. The following
option. options exist to substitute oil:
 Mount R&D efforts to develop  Industrial use of Naphtha, Fuel Oil
commercially viable in-situ coal (FO) and High Speed Diesel Oil
gasification technology. (HSDO) and domestic use of LPG and
Kerosene can all be replaced by natural
 Redouble exploration efforts for oil,
gas. Domestic availability of gas, today,
gas and coal.
looks more promising than oil. Gas
 Raise the level of diplomacy to access should be used for power generation
hydrocarbon reserves overseas and gas only after it meets the above demand.
pipelines to India.
 Produce bio-diesel in a decentralised
 Undertake a technology mission on manner and substitute all agricultural
carbon sequestration. use of HSDO/LSHS/fuel oil with bio-
 Undertake pilot projects to assess the diesel.
economics and social benefits of  Encourage blending of ethanol with
biomass plantations and bio-fuels petrol.
 Undertake a solar technology mission  Provide adequate quality power to
to make solar power using reduce the need for diesel used for
photovoltaics or solar thermal standby generators and diesel pumps.
economically attractive.
 Expand electrification of railways to
 Undertake R&D for exploiting gas- reduce diesel needs.
 Improve railways’ freight service so
 Undertake R&D for fusion to keep that all long distance goods traffic prefer
open that option for unlimited power. railways thereby substantially reducing
 Assess off-shore wind power potential. HSDO used for transport.

Integrated Energy Policy

 Promote urban mass transport to  Encourage hybrid vehicles which are

reduce demand for petrol for personal now available commercially on cost
motorised vehicles. competitive terms.
 Improve fuel efficiency of motorised
vehicles by a factor of two through 45. Under President Kalam’s vision for
better vehicle design. energy independence, India could eliminate its

Table 3.10
Primary Energy Supply Sources (2003-04)
(All figures in Mtoe)
Source Domestic Import# Total
Coal & Lignite Coal 145.00 14.00
Lignite 8.00 -
Oil & Products LPG 12.44 0 12.44
Kerosene 10.69 0.84 11.53
HSD 40.31 -6.29 34.02
LDO 1.21 0.00 1.21
FO 8.36 -0.35 8.01
LSHS 4.60 0.00 4.60
MS 8.59 -3.19 5.40
ATF 2.66 -1.77 0.89
NAPHTHA 13.59 0.21 13.80
Bitumen 3.24 0.00 3.24
Pet Coke 2.80 0.00 2.80
Lubes etc 1.37 1.53 2.90
Others* 18.01 0.15 18.16
TOTAL 127.87 -8.87 119.00
Gas Gas 29.00 - 29.00
Electricity Hydel 7.00 - 7.00
Nuclear 5.00 - 5.00
TOTAL 12.00 - 12.00
Non Commercial Fuel wood Agro 110.00 - 110.00
Dung Cake 32.00 - 32.00
Biogas 1.00 - 1.00
TOTAL 143.00 - 143.00
* Others include refinery fuel of about 9 Mt
# Net of exports

Supply Options

oil dependence over the next 40-50 years by: power during day time can be used to
split water to produce hydrogen that
 Developing cheap batteries with high
can provide electricity at night and can
storage density for hybrids/electric
also be used to run motor vehicles
using fuel cells.
 Developing solar power. As suggested
 Developing nuclear power based on
by President Kalam, if efficiency of
solar photovoltaics can be increased
from the current 15% to 50%, without
increasing the cost, we can have all the 46. A focussed research effort in the
power we need at competitive costs by direction suggested by President Kalam needs
covering a small fraction of our land to be initiated now as the sooner these
(the land required can be further technologies are available, the better it will be
reduced by putting photovoltaic cells for the country’s energy security and
on all roof tops). The surplus solar independence.

Integrated Energy Policy Chapter IV

Energy Security
4.1. WHAT IS ENERGY SECURITY? their paying capacity. Energy up to a
certain level is a basic necessity and
Obtaining a secure and adequate supply whether the state supplies it or not,
of a traded commodity, be it food or fuel, is people will procure it in any way
generally a problem prevalent amongst poor possible. If the state does not provide
people, poor regions or poor nations. With the such lifeline energy, environmental
power to pay the price the rich often find degradation can be expected. Lifeline
willing suppliers for what they want. The energy consumption for those who
World Energy Assessment (UNDP 1999) report cannot afford energy at market price
defines energy security as: “the continuous has to be made good through subsidies
availability of energy in varied forms in that, preferably, target the intended
sufficient quantities at reasonable prices”. This beneficiaries directly. Energy security
definition needs to be modified to better reflect requires that the lifeline energy needs
our situation. of the Nation are met in full.
(c) Effective demand, i.e. demand backed
2. We define energy security as follows: by the ability to pay at market
determined prices, should be met fully.
“We are energy secure when we can If it is not, the rich will get what they
supply lifeline energy to all our citizens desire but the poorer classes won’t.
irrespective of their ability to pay for it as well
as meet their effective demand for safe and (d) If demand is not met at competitive
convenient energy to satisfy their various needs prices the competitiveness of the Indian
at competitive prices, at all times and with a economy would be compromised.
prescribed confidence level considering shocks (e) Safe and convenient energy is desirable
and disruptions that can be reasonably as use of traditional fuels such as wood
expected”. or dung cakes causes indoor air
pollution and leads to adverse impact
The various elements of this definition on health, particularly that of women
that may be noted are: “all her citizens”, “lifeline and children.
energy”, “effective demand”, “safe and (f) Energy is required in different forms
convenient energy”, “at competitive prices”, to meet different needs. Energy in one
“at all times”, “various needs”, “prescribed form cannot be easily substituted by
confidence level”, “shocks and disruptions” and other forms. Often such substitution
“reasonably expected”. involves cost or loss in the quality of
service. For example, kerosene can
These are motivated by the following replace electricity for lighting but at a
considerations: cost and a loss in quality of service.
Fuel cells or batteries could replace IC
(a) It is important that energy is supplied engines using petrol or diesel but at a
to all citizens. When the energy needs cost.
of only some citizens are met, it cannot
be a sustainable situation. (g) Energy should be available at all times.
Interruptions in energy availability can
(b) It is necessary to provide “lifeline” impose high costs on the economy and
energy to all citizens irrespective of also on human well-being.

Energy Security

(h) To ensure energy security at all times, in the oil exporting countries can suddenly and
shocks and disruptions that can be drastically reduce global oil supply. Also in a
reasonably expected must be situation of conflict, an oil blockage may be
anticipated. Ability to withstand such imposed against India. One can think of many
shocks and disruptions is essential for such eventualities. How do we keep our
energy security. However, one cannot economy going in such a situation? How do
guard against all possible shocks at we deal with this supply risk? The threat to
affordable costs. The surety of energy energy security arises not just from the
supply cannot be 100 percent. One can uncertainty of availability and price of imported
ensure supply only within a certain energy, but also from the possible disruption
prescribed confidence level. or shortfalls in domestic production. Supply
risk from domestic sources, such as from a
4.2 THE NATURE OF THE strike in Coal India or Railways, also needs to
be addressed.
3. Energy security has become a growing 6. The second concern is not disruption
concern because India’s energy needs are of supply but the market risk of a sudden
growing with rising income levels and a increase in oil price. While we may be able to
growing population. At the same time, our pay for imports, a high oil price can cause
dependence on imported energy has increased. inflation, slow down the economy and impose
Up from 17.85% of Total Primary Commercial hardship on our people. Given that world oil
Energy Supply (TPCES) in 1991, imports prices have fluctuated substantially over the
accounted for 30% of our TPCES in 2004-05. years (see Figure 4.2), the adverse impact on the
What is of particular concern is that imports economy of sudden and large increases in oil
comprise largely of oil and during 2004-05, oil price is perhaps a more likely risk than supply
imports constituted 72% of our total oil disruption.
7. Any disruption in access to energy can
4. Our projected energy requirement and be very expensive in welfare terms as energy is
various supply options show the country’s critical not only for economic growth but also
growing dependence on import of energy. Not for human survival and well-being. For
only oil and gas but also coal imports are example, if an increase in the price of oil, a
likely to grow substantially over time. Energy disruption of oil supply or erratic power supply
security, thus is an important concern for forces farmers to reduce the use of their pumps
India’s energy policy. and tractors, the consequent reduction in
agricultural output and employment can have
5. The growing dependence on energy a serious and adverse impact on the poor.
import raises several concerns. India’s Thus, a government may choose not to
requirements of fossil fuels for the year 2030 immediately transmit a sudden large increase
based on the scenarios of Table 3.7 (which in the international price of imported energy
gives requirements for 2031-32) are projected to consumers. To be able to insulate consumers
to be 337 to 462 Mt of oil, 99 to 184 Mtoe of against such sudden price increase, governments
gas and 602 to 954 Mtoe of coal. If the global may have to bear the burden of this price rise
fossil fuel supply increases by only 1.7%, as for some time. This requires a certain resilience
projected by IEA, then India’s share in 2030 in the government finances. Of course, if the
would range from 5.8% to 8.0% for oil, 2.4% price increase persists, it has to be transmitted
to 4.5% for natural gas and 16.7% to 26.5% for to the consumers sooner or later since oil
coal (see Figure 4.1). Will we get all the energy imports constitute a large part of India’s oil
that we need even when we are willing and consumption and the subsequent import bill is
able to pay the price? What will we do if sizeable. Thus, India is exposed to price
supply is disrupted due to events outside our fluctuations in the world market and we have
control? Wars, strikes, and political upheavals to accept this reality.

Integrated Energy Policy

Figure 4.1
India’s Growing Share in Global Energy Consumption
(Higher Projections)

Source: Projections are based on the scenarios of Table 3.7 reflecting a GDP Growth Rate of 8% for
India and for World they are 2030 numbers from IEA, 2005

Figure 4.2
World Oil Prices

Energy Security

8. Even when the country has adequate 4.3.1 REDUCE ENERGY REQUIREMENTS
energy resources, technical failures may disrupt
the supply of energy to some people. 11. Major opportunities exist in reducing
Generators may fail, transmission lines could energy requirements without reducing energy
trip or oil pipelines may spring leaks. There services. Improvement in energy efficiency or
may be many such accidents that disrupt the conservation is akin to creating a new domestic
supply of energy. One needs to provide security energy resource base. Such efficiency
against such technical risks. improvements can be made in energy
extraction, conversion, transmission,
distribution and end-use of energy. All of these
efficiency improvements can come using
currently available commercial technologies.
9. The effectiveness of measures to Some examples are detailed below:
enhance energy security depends on the nature
of the disruption. The costs of the various (a) The efficiency of extracting fossil fuels
measures also differ. One wants to minimise in India as well as other mining
the expected cost for a desired level of activities can easily be improved by
confidence. Such measures include: reduction some 10%. For fossil fuels this would
in the need for energy and the consequent mean a lower level of energy spent per
reduction in energy imports; diversification of unit of energy extracted.
supply sources; maintenance of strategic reserve; (b) Fuel efficiency of Coal Power Plants:
and obtaining equity oil or gas abroad that The average fuel conversion efficiency
could, under some cases, help in reducing the of Indian power plants is just about
consequences of both supply and market risks. 30.5% though the new 500 MW plants
have efficiency of 36%. State of the art
10. Actions to improve energy security super critical pulverised fuel fired
can be classified broadly into two groups, one boilers can reach an efficiency level of
that reduces risks and another that deals with 46% depending on plant location.
the risks after they occur. The major policy Under Indian conditions an efficiency
options are: level of 38-40% should be attainable.
Considering our large dependence on
(a) Reducing Risks coal-based power plants, obtaining this
- Reduce the requirement of energy by technology for all new power plants
increasing efficiency in production and should be our first target. Possible
use of energy; policies to achieve this target are:
- Reduce import dependence by (i) Purchase technology, if available at
substituting imported fuels by domestic reasonable price otherwise set-up a
fuels; technology mission to develop it
- Diversify fuel choices and supply independently.
sources; (ii) Offer to buy 20 plants of a standard
size, say 700 MW from any firm
- Expand domestic energy resource base. that first commercialises 42%
efficiency coal fired boiler for
(b) Dealing with Risks Indian coals at a price prescribed in
- Increase ability to withstand supply
(c) Another major option is provided by
freight traffic. The share of railways in
- Increase ability to import energy and total tonne kilometre (t-km) of goods
face market risk; traffic has come down from 70% in
- Increase redundancy to deal with 1970-71 to 39% in 2003-04. If the
technical risk. railway carried 70% of the goods traffic

Integrated Energy Policy

today, it would carry 300 Bt-km of mass transport such as

additional traffic. Assuming that all of underground, elevated trains, light
this goods traffic would have been rail, monorail or dedicated bus lanes
carried by Railways using diesel, the in existing metros.
diesel saved in year 2003-04 would have (ii) For medium size cities, make plans
been around 5 Mt out of a total for efficient public transport
consumption of 40 Mt. If all of the corridors to serve future population
goods traffic was carried by Railways and acquire the right of way. Public
using electric traction, the diesel saved transport can then be further
would have been around 8 Mt in 2003- developed as the city develops.
04. Thus a significant saving of diesel is Development of city infrastructure
possible if Railway operations can be can be financed by gradually
upgraded to win back the haulage lost increasing permissible built up area
to road traffic. The needed policies are: or Floor Space Index (FSI) and
(i) The monopoly of Container auctioning the right to build. Even
Corporation (CONCOR) for the existing land owners should be
container traffic on railways should required to purchase the additional
be ended. right to build, if they want to
(ii) Freight rates should be rationalised extend their buildings.
and the cross subsidy to passenger (iii) Congestion charges and parking fees
traffic should be reduced, if not should be levied in city centres to
eliminated. discourage the use of private cars.
(iii) Timely delivery of goods should
be guaranteed, preferably by 4.3.2 SUBSTITUTE I MPORTED E NERGY BY
operating scheduled goods trains DOMESTIC ALTERNATIVES
between large cities.
12. Energy security can be increased by
(iv) Dedicated corridors for goods
reducing the need for imported energy by
traffic should be developed,
substituting it with other forms of energy.
preferably on electric traction,
Though this does not reduce the need for total
between metro cities.
energy, it reduces import dependence. If the
(d) Energy efficiency and demand side
domestic substitutes increase dependence on
management also have a large scope to
one particular fuel, however, it can increase
reduce energy requirement. These
domestic supply risk. Conversely, if substitutes
include the use of energy efficient
diversify the domestic energy mix, they can
appliances and automobiles, hybrid cars,
also reduce supply risk particularly if the
energy efficient buildings, efficient
substitutes are local renewables. Some
lighting, cogeneration, distributed
important options include:
generation with Combined Heat and
Power (CHP) use, energy efficient and (a) Electrification of railways can replace
well-maintained irrigation pumps, diesel trains. Of course this calls for
smokeless improved woodstoves, etc. investment in electrification of tracks,
The needed specific policy initiatives electric locomotives and electricity
are discussed in Chapter VI. generation. However, with crude oil at
(e) In the long-term, promotion of public US$70 a barrel, electric traction can be
transport in urban areas can economically attractive on routes with
significantly reduce energy lower traffic density than before. Such
consumption particularly the need for electrification can lead to the
imported oil and gas. Some advance substitution of imported diesel with
actions that can be taken now are as domestic coal.
follows: (b) Wood plantations with a potential of
(i) Develop effective and attractive yielding up to 20 tonnes of wood per

Energy Security

hectare per year in a sustainable way (c) Bio-diesel and Ethanol can substitute
could significantly expand the domestic diesel and petrol. Bio-diesel becomes
energy resource base. Wood can be particularly attractive when it is derived
burned directly or gasified for power from inedible oilseeds from trees that
generation. This would reduce the need need little water and fertiliser and can
for future gas/coal imports. thus grow without care on wasteland.

Table 4.1
Sources of India’s Oil Imports – 2004-05
Country Oil Imports % of Total
(Mt) Imports
Middle East Region Iran 9.61 10.03
Iraq 8.33 8.69
Kuwait 11.36 11.85
Neutral Zone 0.15 0.15
Oman 0.14 0.14
Qatar 1.19 1.24
Saudi Arabia 23.93 24.96
UAE 6.43 6.71
Yemen 3.51 3.66
Sub Total 64.64 67.43
Other Regions Angola 2.44 2.55
Brazil 0.29 0.30
Brunei 0.81 0.84
Cameroon 0.35 0.36
Congo 0.14 0.14
Egypt 2.12 2.21
Equador 0.15 0.16
Equitorial Guinea 1.66 1.73
Gabon 0.28 0.29
Libya 1.47 1.53
Malaysia 3.43 3.58
Mexico 2.28 2.38
Nigeria 15.08 15.73
Russia 0.16 0.16
Sudan 0.33 0.34
Thailand 0.27 0.28
Sub Total 31.23 32.57
Total 95.86 100.00

Integrated Energy Policy

Ethanol can be obtained from molasses, An economy that uses coal, oil, gas, nuclear,
which may have other economically hydro and renewables of various kinds is
more paying uses. Ethanol can also be naturally less dependent on one particular fuel,
obtained from other starchy crops and and hence less vulnerable to supply disruptions
from cellulosic plant matter. The of either domestic or imported energy sources.
competition for using limited land The security provided by such diversification
resources and availability of water pose is enhanced when the ability of the users to
the main challenges to increasing the switch among fuels increases. One should assess
production of ethanol. the uses in which different fuels or energy
(d) Use of hybrid vehicles and/or of electric forms can substitute each other. In an
vehicles, cars, scooters and motorbikes emergency if rationing of a particular fuel is
can significantly reduce requirements needed, this process can be made less costly by
of petrol. This requires development encouraging the use of substitutes by specific
of low weight, high density batteries. users. This can also have a bearing on the size
An advantage of such vehicles is that of the strategic reserve that one needs.
individuals can adopt this technology
without the development of a 15. Apart from sourcing oil or LNG
supporting fuel supply network as imports from different countries, supply risks
would be required by hydrogen or fuel can also be reduced by policy coordination
cell based vehicles. among importing and exporting countries, by
importing gas through pipelines, or getting
(e) If hydrogen can be produced as a by-
hydropower from neighbouring countries.
product of industry or with locally
Many countries in India’s neighbourhood have
available energy sources, hydrogen
very large resources of natural gas. Among
based vehicles could provide an option
these are Iran, Turkmenistan, Bangladesh and
to reduce dependence on oil imports.
Myanmar. Turkmenistan’s gas can be
(f) Coal can be converted into oil as is augmented by gas from Uzbekistan,
done in South Africa. The technology Kazakhstan, Azerbaijan and the Astrakhan
is well-developed and in use for years. littoral on the Russian shore of Caspian sea.
Sasol is routinely available at filling Developing such a supply chain poses geo-
stations along with petro and diesel in political challenges. Payoffs are large and
South Africa. attempts must be made to overcome such
obstacles. However, gas imports through trans-
4.3.3 DIVERSIFY SUPPLY SOURCES national pipelines raise their own issues
concerning energy security.
13. The impact of a short-term disruption
in the normal source of supply will depend on (a) Policy Coordination: Not only
how important that source is in our total importers but also exporters benefit
import mix. Thus the first measure for from stable prices. Major Asian oil
increasing security is to diversify our sources importers like India, China, Japan,
of supply both domestically as well as for the Republic of Korea and major Asian
import of oil or gas. India currently imports suppliers like Saudi Arabia, UAE,
oil from many different countries as can be Kuwait, Iran, Qatar and Oman all have
seen from Table 4.1. While we import oil from a stake in securing oil supply and
25 different countries, nearly two-thirds of our demand. A cooperative relationship -
imports are from four countries, i.e. Saudi perhaps under an Asian Energy
Arabia, Nigeria, Kuwait and Iran. Association - can help in reducing
fluctuations in oil supply and prices.
14. Energy security can be increased not (b) Import of Gas Through Pipelines:
only by diversifying sources of import of a Gas imports from, say, Iran through
particular fuel but also by diversifying the Pakistan, or from Central Asia through
energy mix by using different types of fuels. Afghanistan and Pakistan or from

Energy Security

Myanmar through Bangladesh do not likely to be very large and has to

provide a higher degree of energy be balanced against the risks of pipeline
security compared to equity oil or gas. discussed above.
This is so because of the security of (d) Import of Hydro-Power Through
such supply. The supplying country Nepal/Bhutan: Substantial scope exists
typically invests in the pipeline and for import of hydro-power from Nepal
hence has a stake in maintaining the and Bhutan. Their combined potential
supply. Also, if supply to India is is estimated to be in excess of 55,000
stopped, alternate buyers along the MW. This could enhance energy
route may be difficult to find and the security as hydro-power (which is
pipeline cannot be easily diverted like, particularly suited for meeting peak
for example, a LNG ship. Thus the power demand) can replace natural gas-
risk of disruption from the supplier is based generators which are also used
relatively smaller. There is, however, for peaking purposes. The problem of
the risk of sabotage of the pipeline as it arriving at an agreement on the price
transits through different countries. of power needs to be resolved. The
This can be guarded against by the development of a market for power
following: trading in the country provides a
(i) Create an interest in the pipeline benchmark that should make this task
for all countries through which it simpler. Nepal and Bhutan may be
transits. For example, a common given the right to sell power to anyone
pipeline shared by India and on the market to ease this process.
Pakistan will have substantial gains
for Pakistan too. There are 4.3.4 EXPAND RESOURCE BASE AND DEVELOP
economies of scale that reduce costs ALTERNATIVE ENERGY SOURCES
for Pakistan over the alternative of
obtaining gas through a pipeline of 16. Our resource base can be expanded in
its own. Also Pakistan would earn many ways: enhance recovery from existing
transit fees. With this, a disruption resource bases; explore to find new reserves;
should it occur, would likely be of obtain equity energy abroad; and develop new
a short duration. sources of energy through R&D.
(ii) Get multilateral agencies to invest
in the project by way of equity (a) Enhanced Recovery: Enhanced oil, gas
and debt. and coal recovery from existing fields
(iii) Enlarge the domestic buffer stock is an obvious option. India’s recovery
of LNG, have redundancy in of in-place reserves can improve easily
regasification facilities and ensure by 5-10 percentage points. Better mine
that, in the case of a disruption, design and the use of technologically
the supplier would be obligated to advanced mining techniques are valid
provide compensatory supply in options. In the case of oil and gas,
the form of LNG. Such additional Improved Oil Recovery (IOR) and
buffer stock can only be justified Enhanced Oil Recovery (EOR)
as cost of energy security. techniques can improve exploitation of
in-place reserves. Recovery of oil and
(c) Import of LNG: Importing LNG
gas from abandoned and/or marginal
through long-term contracts provides a
fields may also be taken up. However,
flexible alternative to pipelines. Since
the cost of such recovery should be
the global gas market has developed
balanced against the total amount of
and LNG trade has increased, the price
oil or gas that may be recovered from
of natural gas is likely to match the
the field.
opportunity cost of selling it as LNG.
Thus, the cost advantage of piped gas is (b) In-situ Coal Gasification: Similarly

Integrated Energy Policy

for coalfields, in-situ gasification may resources - coal, oil, gas and Uranium
permit much higher recovery of coal - should be stepped up. Offshore wind
than can be economically mined by energy potential should also be mapped.
conventional techniques. Technology (e) Equity Oil, Gas, Coal from Other
development for in-situ gasification Countries: Obtaining equity oil abroad
should be vigorously pursued and entry does not particularly increase oil
barriers for gasification removed. security beyond diversification, if any,
(c) Coal Bed Methane: Methane is of supply sources. The political risk of
adsorbed in coal seams. This Coal Bed disruption of the supply of equity oil
Methane (CBM) usually escapes into through embargos or nationalisation
the atmosphere when coal is mined. etc., would be similar to risk entailed
Tapping and utilising the CBM as a in oil import from the same country.
source of commercial energy has been It also provides a right to a resource
in vogue in the US and Australia for for a period that is typically longer
several years. The estimated potential than that provided by options and
of CBM in India is in the range of futures contracts. To the extent that
1400-2600 billion cu. metres (BCM) India owns that oil abroad, whether it
(1260-2340 Mtoe). The Government is brought to India or sold in the
formulated a CBM policy in 1997 and international market, the value remains
the development of CBM is a the same. Thus obtaining equity oil
concurrent responsibility of the abroad should be mainly looked upon
Ministry of Petroleum and Natural Gas as a commercial investment decision. If
and the Ministry of Coal. So far, 13 the amount of money invested in
blocks have been awarded through obtaining equity oil were to earn a
competitive bidding and 3 blocks by higher return in an alternate
nomination to various PSUs/private investment, then such investment
companies for exploration and provides a better level of comfort for
production of CBM. The estimated accessing oil at even higher prices in
CBM resources in these blocks are 850 the future. Equity oil, however, does
bcm (765 Mtoe) and a total production increase the country’s access to imports
of about 23 MMscmd at peak in the same way as a long-term supply
production level is expected from these commitment. Thus we should explore
blocks. In addition to this, the Ministry and seize economically attractive
of Coal - with the assistance of UNDP/ opportunities for equity energy abroad.
GEF - is implementing a CBM However, such investments must factor
Recovery and Utilisation in all country, political and logistic
Demonstration Project in the Jharia risks. A simple way to ensure an
coalfields under the Coal Science & independent oversight of the techno-
Technology programme. Promotion of economic viability of a new investment
CBM exploration and production is would be to require that it raises at
essential to expanding the domestic least two-thirds of the funding required
resource base in the short to medium- through off-shore commercial loans/
term. equity on a stand-alone basis without
(d) Exploration: Efforts can be stepped recourse to sovereign guarantees and
up to find new reserves. Recent success without recourse to the balance sheets
by private as well as public sector of India’s national energy companies.
companies such as Reliance and Gujarat (f) Using Energy Abroad: In case India
State Petroleum Corporation Ltd. in can get access to cheap gas in gas surplus
finding gas shows the need to attract countries, it could consider setting up
more players in exploration in the captive energy intensive units such as
country. Exploration for all energy fertiliser plants in these countries.

Energy Security

Alternatively, India could set up captive Thorium. The three stage strategy
liquefaction plants to bring LNG into of development of nuclear power
the country. from pressurised heavy water based
(g) Coal to Oil: Rising oil prices in the reactors to fast breeder reactors to
world market makes conversion of coal Thorium based reactors requires a
to oil economically attractive. Sasol sustained R&D effort. Success in
claims that its technology for these efforts could deliver some
converting South African coal to liquids 2,50,000 MW of nuclear power by
is viable if crude oil stays above US$45/ 2050 and much more thereafter.
barrel. India should establish the Given the limited resources of oil,
viability of Sasol technology with gas and Uranium, solar energy and
domestic coal and establish the break- Thorium based nuclear option are
even price at which coal to liquids the only two sizeable sources (apart
would make sense for Indian coal. from fusion) of energy for the
Another step in this direction would country. Thus, the Thorium option
be the inclusion of coal to oil must be pursued. Failure to
conversion in the list of captive use economically develop India’s
under Section 3(3) of the Coal Mines Thorium based nuclear potential
(Nationalisation) Act, 1973, so that to the fullest will significantly
dedicated coal blocks could be allocated increase India’s dependence on
for this purpose. domestic and imported coal.
Nuclear power will not only
(h) Gas to Liquid (GTL): In addition to
enhance energy security but also
sourcing piped natural gas and LNG,
yield rich dividends by reducing
natural gas liquids may be another
carbon emissions.
option. Major investments are being
planned for conversion of gas to liquid (ii) Gas Hydrates: Very large reserves
in countries with large gas reserves exist in Indian waters and have the
viz., Qatar, Nigeria and Australia. India, potential to provide vast amount
with strong political ties with Russia of gas. Technology to exploit these
and CIS countries, can consider setting economically in ecologically safe
up GTL plants in these countries under ways is yet to be developed.
long-term arrangements wherein India However, the potential size of the
gets a share of the produced liquids. resource makes it critical to
However, a comprehensive study to vigorously pursue R&D.
evaluate technology, available resources (iii) Wind: The potential for onshore
and the economics involved is necessary wind power has been assessed to
prior to entering into any collaborative be 45,000 MW. The Wind Energy
arrangement. Society of India claims it to be as
high as 65,000 MW. However,
(i) New Domestic Sources: The domestic given that the average capacity
resource base can also be expanded factor realised by India’s wind farms
through developing hitherto poorly is only about 17%, the total
developed or new sources of energy. contribution to energy from these
Some of these resources may require plants would be relatively small.
R&D to make them economical. Thus while wind power may be
Among these are: pursued for environmental and
(i) Nuclear Power: With meagre economic reasons, its contribution
availability of Uranium in the to energy security will remain very
country and vast resources of limited. Off-shore wind power
Thorium, any long-term nuclear potential has not yet been assessed.
strategy has to be based on As mentioned above such

Integrated Energy Policy

assessments should be taken up should be made in the form of

immediately. energy plantations to improve
(iv) Solar: Solar energy, if it can be India’s energy security.
economically exploited constitutes
a major energy resource for the 4.3.5 INCREASE A BILITY TO W ITHSTAND
country. Solar electricity generated SUPPLY SHOCKS
through either the thermal route
or using photovoltaic cells provides 17. Once imports are minimised and
comparable amounts of electricity diversified, the shortage due to disruption of
per unit of collector area. Both supply from any one country will be small and
methods currently provide about can be dealt with by maintaining a strategic
15% conversion efficiency. While reserve. A stock of oil can be kept either in
it is clear that the ratio of capital storage tanks or in the form of ability to get
cost to the efficiency of energy higher output from existing wells at short
conversion needs to be brought notice.
down significantly, solar thermal
and solar photovoltaic routes to 18. If the supply disruption is total, such
electricity generation remain as might occur through a blockade in a situation
attractive alternatives to enhance of conflict, the size of the buffer stock needed
India’s energy security. Nano- would depend on the expected length of supply
technology holds the hope for disruption. In today’s world local wars are not
making a major breakthrough in likely to last beyond a few weeks often due to
solar photovoltaic technology. It is the interventions by the world community.
stressed here that solar water Thus the size of the buffer stock need not be
heating is cost effective for India very large. Pachauri (2005)5 argues as follows:
even today and can reduce India’s
demand for oil, gas and coal if “Strategic reserves of crude oil and
pursued to meet the hot water petroleum products were first
demand in industry and households. recognised as a policy tool in the
(v) Energy Plantations: Growing fuel aftermath of first oil shock in 1973.
wood for running power plants Major industrialised nations got
either directly or after gasification together and formed the International
can save the coal or gas used for Energy Agency (IEA), which was
generating power. Since the charged with the task of coordinating
country’s energy needs are growing, the purchase of oil during a future
imports of coal and LNG are also shock and of coordinating the draw
likely to grow. Fuel wood down of reserves during the hour of
plantations can help improve crisis. Currently, IEA member
energy security. The scope for such countries hold strategic stocks of about
plantations is substantial. For 90 days of net imports and there are
example, if 10 million hectares of already talks of increasing the cover to
wasteland can be converted to fuel 120 days. Strategic reserves do not come
wood plantations with a sustained cheap. According to an estimate
yield of 200 Mt of wood per year, prepared by the Engineers India
it would obviate the need for some Limited (EIL), the capital cost of
200 Mt of domestic coal. Moreover building a strategic reserve of 5 Mt of
since wood is a renewable fuel, no crude oil at Rajkot (2.5), Mangalore
net carbon emission takes place. (1.5) and Vishakhapatnam (1.0) are
Thus all compensatory afforestation Rs.1225.2 crores with a mixture of

Pachauri, R.K. (2005): Addressing the Challenge of Energy Security. A report prepared for the Asian
Development Bank by The Energy and Resources Institute (TERI), New Delhi.

Energy Security

concrete tanks and rock caverns. The an oil reserve of 90 days is maintained by
maintenance cost of these facilities is many countries, which they also use as a
calculated as 29.3 crores. This excludes buffer stock against price fluctuations. We
the cost of crude”. (At $70/barrel 5 Mt might use that as a thumb rule for our strategic
of crude equivalent to about 14 days of plus buffer stock reserve. Such a reserve can
net imports is estimated to cost also provide enough room to curtail domestic
Rs.11,545 crore) needs by switching over to alternate fuels,
“No extensive exercise has been done rationing to restrict some uses and promoting
evaluating the benefits of Strategic thrift thereby making it possible to manage a
Petroleum Reserve (SPR) for India. longer supply disruption. The effectiveness of
APEC (APEC, 2000) concluded such a reserve can be increased if it is a part of
“emergency oil stocks could be the regional reserve or is cooperatively operated
most effective means for minimising with reserves of other countries such as the
the economic cost of interrupted IEA member countries.
supplies and high oil prices”. (APEC –
Emergency oil stocks and Energy 4.3.6 INCREASE ABILITY TO IMPORT ENERGY
Security, Tokyo March 2000). It further AND FACE MARKET RISKS
said that this was true for a large
20. To guard against the market risk of a
economy or a group of economies.
sudden price increase, we need to keep our
Similar conclusion was reached by
energy import bill within a certain proportion
Leiby and Bowman (The Value of
of our foreign exchange earnings or maintain a
Expanding the U.S. Strategic Petroleum
stock of foreign exchange to address volatility.
Reserve, Paul N. Leiby 7 David
Bowman, Oak ridge National
21. Options contracts and the futures
Laboratory, November 2000) who
market can be used to reduce the risk of price
concluded that benefits from expanding
volatility. If the energy market is competitive
the size of reserves for the US economy
then managers can be expected to use these
are enormous”.
instruments to reduce their risk. Even then,
“The strategic reserves of crude oil/ for public sector management, special schemes
petroleum products, held by developed may have to be designed to provide incentives
countries serve as a global common to minimise import costs. However, options
good. Draw down of such reserves and futures may not be available over a long
during a crisis has an impact on the duration. Equity oil or gas holdings abroad
world oil market, which is integrated may provide better security against sudden
to a fair extent. Thus, poorer countries price increases.
can reap the benefits of strategic reserves
without holding it. Otherwise also, it 22. A buffer stock can also help in reducing
seems practical to have regional strategic the impact of short-term volatility in prices.
reserves that would not only entail As pointed out above its effectiveness increases
lower costs but will also expand the when it is worked cooperatively with reserves
possible benefits among many of other countries.
countries. Regional cooperation in
South Asia in this respect can be
fruitful. For a country like India, given
the uncertainty about benefits, it may
be more economical to hold the 23. The obvious solution against technical
minimum reserves required to tide over risks is to provide redundancy. For example,
very short-term supply disruptions”. electrical networks minimise probability of a
loss of load by providing alternate routes.
19. These arguments suggest a strategic oil Similarly, power plants carry standby capacity
reserve of around 30 days at most. However, or a spinning reserve to address the technical

Integrated Energy Policy

risk of same station going off the grid or of a with her rising economic and political stature
sudden increase in demand. Some redundancy in the World economy. Yet, there are certain
must be built into the design of all energy additional policies that can be instituted to
installations to address such technical risks. enhance our energy security. These are:
 A legal claim to energy resources abroad
can marginally enhance India’s energy
POOR security to the extent that such a claim
24. Even when the country has adequate increases the diversity of supply sources.
energy and even when there are no technical Equity oil and gas abroad are being
failures, the poor may not get clean energy. currently pursued. The Planning
The issues and policies for providing energy Commission, recognising the looming
security to the poor are discussed later in coal import requirements, has been,
Chapter VIII. emphasising equity coal for the past
three years in order to further increase
4.5 POLICIES AND INITIATIVES the diversity of supply of fuels.
FOR ENERGY SECURITY Nonetheless, these acquisitions should
be primarily assessed as commercial
25. India’s energy security concerns have, investments. Thus, while the
thus far, been largely defined by a narrow Government must aggressively support
focus on supply disruptions and the consequent acquisition of energy assets overseas,
need to increase redundancy in our stocks of companies active in this field must be
crude oil and petroleum products through the forced to securitise the assets with
creation of a strategic storage. In reality, India’s international funding instead of the
energy security concerns go well beyond a current practice of acquisitions based
narrow focus on a likely supply disruption in on 100% equity. The process of
our crude oil imports. India’s energy security, securitisation essentially creates an
at its broadest level, has to do with the interest of other investors in the cash
continuous availability of primary commercial flow anticipated from the asset being
energy at a competitive price to fuel our acquired. This will not only provide
economic growth and to provide reliable access independent oversight on the quality
to modern forms of primary and secondary of such acquisitions but also strengthen
energy and energy services needed for lifeline our legal claim over these assets under
support to over 50% of our population which extreme situations.
lacks access to any form of commercial energy  Another mitigating policy could be to
barring the unreliable and often costly supply diversify imported fuels as well as the
of PDS kerosene primarily for lighting. Again, sources of such imports. Today, almost
energy security requires that such access to 100% of our energy import is in the
lifeline energy be ensured even if it requires form of crude oil with 67% being
directed subsidies. sourced from the Middle East. A
strategy to import larger quantities of
26. We have discussed how to reduce risk Gas, LNG, coal, ore emulsion, ethanol
to our energy security by way of policies etc, as additional energy sources should
aimed at reducing our energy requirements be considered. Further, imports from
and import dependence (through efficient other countries can be enhanced for
production, transmission, distribution and use strategic diversification of supply
of energy, development of efficient energy sources.
markets, instituting well-targeted “lifeline”
 Power plants at coastal locations should
entitlements, and diversifying/expanding the
domestic resource base using commercial or be set up with captive jetties to run on
near-commercial technologies). India’s ability imported coal.
to effectively manage such risks can only grow  If and when the gas pipeline from Iran

Energy Security

materialises, we may have a sudden plus regime) and not in the nature of
increase in supply of natural gas of strategic reserves. Internationally, a 90-
nearly 30 Mtoe a year. After meeting day strategic reserve is considered
the feedstock requirement for fertiliser adequate for providing security against
and chemical plants, the temptation short-term supply disruption and/or
will be to use this increased supply for extreme price spikes. India could
power generation. Advance planning earmark part of the available storage
should be done to use this gas in more capacity with oil companies as strategic
appropriate ways such as in distributed reserve controlled by the Government.
generation and CHP applications where Japan follows this practice and requires
we can get an efficiency of 80% or its oil companies to carry and maintain
more. a strategic reserve. Additional strategic
 India currently has stocks equal to storage may also be built to supplement
about 85 days of requirement excluding such mandated strategic reserves.
line-pack and the strategic stocks for Regional cooperation in South Asia in
the defence department that are this respect can be fruitful. For a
maintained by Indian oil. However, country like India, given the
these stocks are more in the nature of uncertainty about benefits, it may be
raw material and finished good more economical to hold the minimum
inventories (for which facilities had reserves required to tide over very
been built during the comfortable cost short-term supply disruptions.

Integrated Energy Policy Chapter V

Energy Policy Options/Initiatives

India has to depend on a mix of needed, it is essential that India, once again
different fuels to meet its energy requirement. gives energy the same importance it was given
The opportunities and economics for in the first 30 years of its planned development.
substitution vary with place, time and With the current emphasis on market driven
application. To ensure that options selected by growth, this implies that India must make a
individuals and firms lead to an efficient strategy deliberate effort to create an enabling
for the country, appropriate policies need to environment that attracts the required
be followed within an integrated framework investments into energy and related
and in the context of the emerging backdrop infrastructure, and an environment that exploits
detailed below. the synergy of public private partnership.

5.1 THE EMERGING BACKDROP 3. “Lifeline” Energy for All: Access to

safe, clean, convenient and reliable energy is
2. Energy for Growth: The discussion
vital for people’s well-being. Clean cooking
in Chapters I through IV provides the necessary
energy is essential for freeing women and girls
backdrop to the Energy Policy Options/
from the burden of indoor air pollution and
Initiatives that India needs to pursue. India has
the drudgery of long hours spent in gathering
committed herself to eradicating poverty and
fuel wood and dung. Clean cooking energy is
empowering its people with education and
thus also a tool for empowering girls and
health. Given that the population is expected
women to pursue education and enriched
to reach 1.47 billion by 2031-32, and the fact
livelihoods. Again, a minimum amount of
that sizeable part of India’s population, today,
electricity is essential to remove darkness,
is living below the poverty line, rapid growth
extend working hours and raise productivity.
rates of around 8% per annum over the next
However, even when safe, clean and convenient
25 years are essential for attaining these goals.
energy is available, the poor may not be able
To fuel a sustained 8% annual growth, our
to pay for it at market prices. No progressive
energy scenario faces major challenges. Even a
government can ignore its responsibility to
conservative projection of India’s energy needs
provide a “lifeline” level of energy inputs in
to fuel this level of economic growth requires
the form of electricity and clean cooking fuel.
that basic capacities in the energy sector and
Such lifeline consumption is an essential part
related physical infrastructure such as rail, ports,
of energy security for India’s people. Further,
roads and water grow by factors of 3 to 7
such lifeline consumption would need to be
times by 2031-32 alongside a 20-fold increase in
subsidised for some consumers till income levels
nuclear and a 40-fold increase in renewable
rise to make such consumption affordable for
energy. If we cannot assure supply at even the
all households. The good news is that such
conservatively projected levels of commercial
lifeline consumption does not require more
energy (1.35 to 1.70 billion tonne oil equivalent
than 75-80 billion kilowatt hours of electricity
by 2031-32 compared to the 2003-04 level of
(BkWh) (about 12-13% of net electricity
327 Mtoe), we will not be able to grow at 8%
generation in 2004-05) and some 16-17 Mtoe of
per annum. This level of commercial energy
LPG (about 4.5 to 5.0% of the 2004-05 level of
consumption yields a growth in total energy
commercial energy consumption). Further, it
consumption that ranges from 4.3% per annum
can be said that currently not more than 75%
to 5.1% per annum over the 2003-04 level of
of the lifeline consumption of electricity (60
consumption. However, to supply the energy

Energy Policy Options/Initiatives

BkWh) and some 85% of LPG (13 Mtoe) needs that of oil and gas together between 32% and
to be subsidised to varying degrees. These 41% of total energy. Abundant Thorium and
percentages will fall relative to our total solar resources might become important sources
consumption over time. However, in absolute for India beyond 2050 provided we promote
amounts, these numbers are not likely to exceed R&D now to be able to realise this potential in
these levels of magnitude as consistent growth the future. Under the most optimistic scenarios
at 8% should reduce poverty levels and raise for hydro, renewable and nuclear growth, and
capacity to pay to effectively negate the impact domestic supply levels for coal (3.8 times
of population growth. What is essential, though, current levels), oil (3 times current levels) and
is efficient targeting which ensures that: (a) gas (more than 5 times current levels), India’s
only lifeline level consumption is subsidised; import dependence for commercial energy, in
and (b) the subsidy is enjoyed only by those 2031-32, would range from a low of about 29%
who cannot afford to pay for such lifeline in the most energy efficient scenario to about
consumption at market prices. However, even 59% in the most energy intensive scenario.
with full electrification and targeted subsidies Realistically speaking, it is likely that India
on commercial fuels for cooking, India’s would need to import some 40-45% of its
reliance on traditional non-commercial energy commercial energy requirement compared to
sources will rise in absolute terms to some 185 the current level of under 30%. Domestic
Mtoe in 2031-32 from the current level of commercial energy supplies will then need to
about 150 Mtoe even as the share of total rise four times in aggregate over the next 25
primary non-commercial energy consumption years if import dependence for commercial
falls from about 30% to 10-12%. If we succeed energy is not to exceed 40%.
in providing clean commercial fuels to
households as proposed, this bio-mass would 5. India’s Energy Intensity: The energy
increasingly get diverted for industrial use and/ intensity of India’s growth has been falling and
or power generation. though it is currently about half what it used
to be in the early seventies, there remains
4. Role of Different Fuels: Given India’s significant room to improve. Improvement in
limited resources of oil, gas, Uranium and energy intensity creates a virtual source of
hydro-power, it needs to develop all energy by reducing the total energy needed to
economically viable sources of energy. The sustain a given level of growth. While
integrated analysis of various energy resources differences in the structures of different
and supply options reveals that even under economies may result in different energy
aggressive growth assumptions for hydro (5 intensities, available data clearly shows that
times current levels) and nuclear (20 times energy intensity can be brought down
current levels), the contributions from the two significantly in India with commercial
together cannot exceed 8-10% of commercial technologies that are currently available. The
energy supply in 2031-32. However, both hydro country must endeavour to do so at the earliest.
and nuclear remain strategically important;
hydro for providing much needed peaking 6. India’s Energy Demand in the Global
support and storage capacity for water and Context: Putting India’s likely energy demand
nuclear to work towards India’s energy in 2031-32 in a global perspective, one sees that
independence in the long-run based on China’s current energy consumption is 1100-
Thorium. Renewable energy, even when it 1200 Mtoe and USA’s current consumption is
rises to 40 times its current level will, at best, 2400-2500 Mtoe. In comparison, India
meet only about 5 to 6% of India’s commercial consumed about 348 Mtoe of commercial
energy demand by 2031-32. Despite this, energy in 2004-05. With a projected population
renewables remain important from the point of just under 1.47 billion in 2031-32, India’s
of view of increasing our domestic resource per capita energy consumption (based on the
base. Fossil fuels maintain their domination in mid point of the range of scenarios developed
India just as in other parts of the world. The in Chapter III) will be marginally above China’s
share of coal varies between 41% and 54% and current per capita consumption or be about

Integrated Energy Policy

one seventh of the current US per capita India to absorb technologies and policies that
consumption. What this means is that India on lower its energy intensity.
per capita basis, currently consumes under 6%
of what the US consumes and under 41% of 8. Growth in a Constrained Energy
what China consumes and will, by 2031-32, Market: Irrespective of the final level of
consume just under 15% of current US demand, India’s growing demand for
consumption levels and equal China’s current commercial energy supply has to be seen in
per capita consumption. More importantly, the context of a tightening global energy market
India’s per capita energy consumption that is with rising prices and stagnant outputs. The
less than 27% of 2003-04 level of global average world oil demand is expected to grow from
energy consumption, shall in 2031-32 also the current level of 81-82 million barrels per
remain just about 74% of the current global day to 110 million barrels a day by 2020 at a
average. On simple considerations of equity growth rate of 1.8% per annum. Nearly 65%
alone, therefore, India cannot be denied this of crude oil is traded across borders. The
level of energy consumption by 2031-32. world gas production is expected to rise from
2420 Mtoe to 3418 Mtoe by 2020 at a growth
7. On an incremental basis, assuming the rate of 2.2% per annum. However, less than
world’s fossil fuel supply grows at about 2%, 25% of gas is traded across borders either
India’s incremental fossil fuel demand will through pipelines (natural gas) or to a lesser
account for 21% of the incremental world extent as LNG (30% of the total gas trade).
supply of fossil based commercial energy by The US production of oil peaked in 1970 and
2031-32 in the most fossil fuel intensive scenario. North American gas production is widely
In the least fossil fuel intensive scenario, India’s believed to have peaked in 2000. The world oil
incremental share of the incremental world and gas production are expected to peak in the
supply of fossil fuel based commercial energy 2010-15 and 2015-2020 time frames respectively.
will be 13% by 2031-32. India’s share of world The growth in the demand of primary energies,
supplies of fossil fuels in 2031-32 would rise over time, has not lead in the past to an
from a level of 3.7% to a low of 7.6% in the exhaustion of reserves because the right price
most energy efficient scenario and 10.9% in signals lead to new, more competitive, sources
the most energy intensive scenario. It is pointed of energy that take their place. Nevertheless,
out that it is this incremental demand from the uncertainties of energy markets, particularly
India when coupled with the much higher in moving supplies to where they are needed,
incremental demand from China that is cited coupled with the long lead times of new
as putting pressure on fuel prices and is raising investments in developing new and alternate
apprehensions in the world community. The reserves/sources of primary energy and adding
fact is that the incremental US demand for oil corresponding refining/liquefaction/
was twice that of India and China’s was twice transportation capacities reinforce the view that
that of US over 2000 to 2004. The real issue is the supply-demand balance for oil and gas is
not the incremental demand from India but likely to remain tight for the foreseeable future.
the dire need to curb consumption and realise Even if this is considered to be a pessimistic
life style changes in the developed world. If outlook, India should be prepared for it.
India is to be denied even the modest levels of
energy consumption cited in Paragraph 6 even 9. The common belief that current prices
in 2031-32 then we can forget about eradicating of oil are high is only true in nominal terms.
poverty or meeting the millennium If one looks at historical oil prices in constant
development goals. Further, if the energy 2005 dollars then the recent average of about
consumption levels in the developed world are $55-60 per barrel is comparable to the average
not brought down significantly the climate price of US$53.50 that prevailed between 1974-
change goals shall never be met irrespective of 1985. In fact, in comparable 2003 dollars oil
the growth in Indian demand. Finally, the 8% prices were at an all time high of $80 a barrel
GDP growth trajectory is as important to in 1980 and were at $72 a barrel during the
reducing poverty in India as it is to enable four year period 1979-1982. These facts are

Energy Policy Options/Initiatives

behind the low impact that currently nominally Thus, we have to stretch out our energy
high oil prices are having on global inflation resources as much as we can by promoting
and the predictions of higher prices to come. energy efficiency and conservation. To augment
our energy resources, we should also promote
10. It is thus of utmost importance that the development of new sources of energy.
alternatives to oil which are based on domestic
resources are pushed. Energy efficiency, energy 13. Energy Coordination Committee:
conservation, development of substitutes and The above backdrop and the discussions in the
R&D to make them economically viable should previous four chapters establish: (i) the
get high priority. Some of the possibilities are inescapable dependence of growth across all
identified in Section 3.4. sectors of the economy (including social sectors)
on the assured availability of energy supplies at
11. Coal Remains India’s Most Important competitive prices; (ii) the existence of cross
Energy Source, Gas Share Remains Low: cutting issues impacting various sub-sectors of
Coal emerges as the most important energy energy and the related infrastructure for its
source for India accounting for not less than production and delivery; (iii) the massive
41% of our energy mix under any scenario and investment needs of the sector for increasing
potentially reaching 54% of the energy mix domestic supply and ensuring energy security
under certain scenarios. Even at the 41% level, for all; (iv) the need to raise technology levels
India will need 1.6 billion tonnes (about 4 and mounting specific R&D efforts under
times the current production). At the higher mission mode; and (v) instituting targeted
share requirement could rise to 2.5 billion subsidies for lifeline energy needs. These
tonnes (over 6 times the current production) features and the need for rational pricing &
of coal from domestic sources. The additional taxation to promote inter-fuel substitutions,
coal requirement from domestic sources will cost reduction and efficiency gains etc. underline
be even higher if the past trend of falling the need for an integrated energy policy. They
domestic coal quality is not arrested. India also provide the basis for the Integrated Energy
could also import 250 to 500 Mt of superior Policy Committee to support the Planning
coal to reduce local coal requirement by 375 to Commission’s 10th Plan proposal for “Creation
750 Mt per annum. It is pointed out, however, of an Apex Body on Energy under the
that currently only about 700-800 Mt of coal is chairmanship of the Prime Minister”. Such a
internationally traded. Associated port and rail body at the highest level of government is
handling would have to rise in capacity to essential for operationalising the kind of policy
achieve any of the above scenarios. Gas under decisions enumerated below. An “Energy
various scenarios is seen to account for only Coordination Committee”, under the
5.5% to 11% of our energy mix in 2031-32. Chairmanship of the Prime Minister, has
Achieving a gas share in the 10-11% range in already been created to review and approve
India’s energy mix presumes successful policies for the energy sector as a whole.
development of the Krishna-Godawari (KG)
basin potential, exploitation of coal bed 5.2 POLICIES COVERING ENERGY
methane and success with trans-national gas MARKETS, REGULATION,
pipelines and LNG imports. Clearly India’s PRICING, TAXATION,
policy framework must recognise the pre- SUBSIDIES, EXTERNALITIES
eminence of coal and the importance of getting
the required technology to maximally exploit
the large in-place reserves of coal. 14. Meeting Growing Energy Needs in a
Cost-Effective Way: To meet growing energy
12. Development of New Sources: needs in an efficient, cost-effective way requires
Depending upon the level of increase in a policy framework that realises efficiency in
domestic coal production to meet growing production, transmission, distribution and
demand, India’s currently known reserves of consumption of all available types of energy,
extractable coal will not last beyond 45 years. and that provides incentives to supply required

Integrated Energy Policy

energy. Promoting transparent and competitive sector has a regulatory framework. A Regulator
markets for all forms of energy supplies/services is for the petroleum sector is being established. A
the first policy initiative that the government Regulator for coal is also needed. The regulatory
must take as part of its integrated energy policy. framework must ensure the following:
Such competitive markets provide the best means
to extract efficiency gains from the sector.  To provide genuinely independent
regulation across each sub-sector of the
15. Having said this, it is also recognised energy value chain, the regulatory
that in some sectors within the energy sector responsibility/functions of the State
(especially power) truly competitive markets must be separated from the Ministries
may be difficult and costly to realise. Efficient, that control the PSUs that dominate
strong and independent regulation can, the energy sector and are the principal
however, address this concern effectively. owners of over 75% of India’s energy
Transparent and competitive markets that offer assets and related infrastructure.
a level playing field to all participants, and are  Since domain knowledge is important,
independently regulated, are essential to the a common Regulator is not
creation of an enabling environment for recommended for all energy sub-sectors.
domestic and foreign investment flows from However, to provide cohesion and
public and private sources to the energy sector. consistency of regulation across all
Energy efficiency in extraction, conversion, energy sub-sectors, the Regulators
transmission, distribution and consumption should meet regularly and arrive at the
requires that all players and all energy projects, common principles that emerge from
public or private, mega projects or micro this Integrated Policy.
projects, domestic or foreign, are treated equally
 There should be a common appellate
under a consistent policy framework. Moreover,
tribunal for all the energy sub-sectors.
appropriate pricing of various energy sources
and services is needed to realise efficient choice  The functioning of regulatory
across fuels. The policies to achieve competitive institutions must be improved by:
and transparent markets must recognise the • Creating an autonomous
dominance of large public sector units in most Regulatory Academy
energy sub-sectors. Many of these PSUs are • Institutionalising the selection of
financially strong but their strength has been Regulators and their impact
acquired in a protected public sector assessment under the Regulatory
environment. The presence and strength of Academy
dominant and efficient public sector units can • Mandating training for all
be an asset in the transition to a competitive Regulators
set-up as they, through their participation could • Granting financial autonomy to
provide a starting benchmark that the markets regulatory institutions
must better. Some key specific initiatives needed • Limiting the quasi-judicial role of
to support such an overall policy commitment Regulators to tariff setting and
across the energy sector, and for each of the dispute resolution
energy sub-sectors, are described below. • Providing a system that makes
Regulators accountable to
16. Independent Regulation: Independent Parliament
regulation is critical to attaining competitive • Mandating annual reports from all
efficiency in the energy sector since the sector Regulators that detail progress
is characterised by large economies of scale and under and compliance with the
has natural monopoly characteristics in sub- various provisions of the Act they
sectors such as transportation and distribution are regulating
networks. It is important that all sub-sectors of
 In order to give independent regulation
the energy sector are regulated and done so in
a consistent manner. Today, only the power a fair chance of success, the government

Energy Policy Options/Initiatives

should create the enabling policy resources, lack of substitutability, externalities

environment for competitive and such as ease of use, differences in achievable
transparent markets by eliminating levels of efficiency, differences in specific
barriers to entry and removing pro- investment levels per unit of energy, differences
public sector biases. in environmental impact etc. – all combine to
 It should also be recognised that thwart rational markets for energy. Add to
regulation and competitive markets are this mix policies that look upon energy
not substitutes for one another. supplies/services selectively and differently for
Similarly ownership is no guarantee purposes such as raising fiscal resources and
for efficiency and replacing a public providing subsidies; – or politically different
monopoly by a private one is unlikely perceptions of what constitutes a long-term
to yield efficiency gains. Privatisation “social good” and what is best for the “national
of dominant public sector enterprises interest” and what one gets is a recipe for ad-
in the energy sector is likely to be hoc policies that are, more often than not,
effective only if a well-regulated and a inconsistent. To obtain competitive efficiency
competitive market exists/results. in this environment requires continuous
engagement by policy makers at the senior-
most administrative and political levels and a
17. Relative Prices for Efficiency: Relative
set of dedicated and fiercely independent
prices play the most important role in choice
Regulators to achieve near optimal market
of fuel and energy form. They are thus the
most vital aspect of an Integrated Energy Policy
that promotes efficient fuel choices and
19. The Distortions in Pricing Energy in
facilitates fuel substitution towards specific
India: As pointed out earlier, based on
objectives. In a competitive set-up, if the
purchasing power parity comparisons, the
marginal use value of different fuels which are
Indian consumer pays one of the highest tariffs
substitutes for one another are equal at a given
in the world6, for energy supplies/services. At
place and time, and if the prices of different
present in most energy sub-sectors there is
fuels at different places do not differ by more
virtually no competition. Despite the
than the cost of transporting the fuels, then
dismantling of the Administered Price
the resulting inter-fuel choices will be efficient.
Mechanism in the petroleum sector and price
Prices of different fuels cannot be set
controls in the coal sector, Government
independently of each other. However, this is
controls hydrocarbon pricing. The current
the current practice and the domestic energy
policy is to price petroleum products at
prices are not only uncompetitive but suffer
international parity without any competition
from a number of distortions as detailed in
among incumbents. However, this policy is
Paragraph 19 below.
not being followed. Further, prices are loaded
with taxes and levies that are not uniform and
18. In perfect markets the relative prices of
lack consistent policy drivers. Access to
different energy supplies and services yield the
petroleum products including subsidised
most optimal fuel mixes, investment flows and
kerosene meant for the Public Distribution
economic outcomes. At the margin, competing
System is limited. There is a need to examine:
energy sources providing the same end service
(a) why the so called import parity price is
are priced identically per unit of such service
used for oil products wherein India is a net
delivered. However, such perfect energy
exporter; (b) why trade parity prices are not
markets do not exist in most countries. Supply/
used; (c) what is the basis on which import
resource constraints, priority of domestic
parity is calculated; (d) the practice of burdening
energy resources over imported energy
oil marketing with kerosene and LPG subsidies
6 Based on country reports we have calculated that in 2002 the average purchasing power parity price in US
cents per kWh was 30.8 in India, 7.7 in US, 9.5 in Germany, 15.3 in Japan, 20.6 in China and 27.6 in

Integrated Energy Policy

and the leakages in these subsidised products; supplies and services must ensure that: (i)
and (e) the practice of making upstream distortions are removed across all energy and
companies share the subsidy burden of oil energy service sub-sectors; (ii) appropriate
marketing companies. Serious entry barriers priority is given to the development of local
remain for new entrants to import products energy resources and related infrastructure; (iii)
and market the same freely. Natural gas supplies energy conservation and energy efficiency are
are well below current demand levels and encouraged; (iv) India’s competitiveness is
multiple prices prevail in the market. Coal has raised; and (v) economic growth is spurred.
been deregulated under a monopoly supplier, Key policy principles and initiatives in pricing
even though the import and transportation energy supplies and services that cut across all
infrastructure for moving coal remains both energy sub-sectors of India are enumerated
deficient and largely in the hand of Government below.
monopolies. Again there are serious entry
 As a general rule, all commercial
barriers for new entrants wishing to mine coal.
primary energy sources must be priced
Supplies of coal barely match demand. Power,
at trade parity prices at the point of
a secondary form of commercial energy, is
sale. This should be particularly so for
grossly overpriced (for the paying industrial,
the oil sector where imported crude
commercial and large domestic consumers) since
provides over 70 percent of domestic
over 40% of the energy through put is either
consumption of petroleum products.
not paid for or bills for it are not collected by
Even when the global oil market
the State utilities. Uranium fuel used in India’s
dominated by Organisation of the
nuclear plants costs at least three times the
Petroleum Exporting Countries
prevailing international prices due to very poor
(OPEC) is not a competitive market,
deposits. Wind power in India delivers only
the trade parity prices reflect India’s
about 17% capacity factor on average, India’s
opportunity costs. However, the
hydro sector has been plagued with significant
domestic economy may have to be
delays and cost over-runs, and the Himalayan
protected against short-term volatility
geology makes siltation a major issue in hydro
in the International market caused by
development and the realisation of our full
speculators and manipulators. The
hydro potential thereby affecting costs of hydro-
government can do this by adjusting
power. Non-commercial energy is considered
taxes and duties in a revenue neutral
to be practically free since opportunity costs of
way. An alternative could be to allow
labour spent in collecting firewood or cow
price adjustments based on lagging 1-3
dung and preparing the same are rarely factored
month average prices, thereby forcing
in. Taxes on petroleum products are a key
oil companies to use short-term
source of government revenue but not uniform
hedging. Another alternative would be
across products and, finally, differential state
to use long-term supply contracts linked
taxes and custom duties on crude and petroleum
to a variety of more stable energy price
products introduce further distortions in energy
indices. Of course any persistent price
pricing in India.
change that cannot be absorbed by
change in taxes and duties, should be
20. While keeping energy prices high has
passed on to the domestic consumers.
helped limit demand, it has definitely made
Several arguments are made to maintain
Indian industry, agriculture and commerce less
the status quo of import parity pricing
competitive and has constrained consumption,
in the oil sector. However, the only
both of which subdue economic growth. High
legitimate alternative to trade parity
energy prices are akin to a tax burden on the
prices is full price competition at
consumer and the economy. Given India’s
refinery gate and retail levels in a
energy supply constraints and its energy
competitive environment with low
security concerns, national priorities will
entry barriers and multiple players.
require that all available energy resources be
Once full price competition is
optimally exploited. Rational pricing of energy

Energy Policy Options/Initiatives

permitted on the inputs as well as the commodity or, alternatively, piping it

outputs at all levels and the to an export market. Either option
Government stops interfering in price adds cost (inclusive of return on capital
setting, trade parity prices will prevail employed) to transform the non-
and the need for building up costs on tradable natural gas to a tradable
a normative basis with possibilities of commodity based on investments. The
padding up, as is currently being done, net-back-realisation by the gas producer
will be obviated and efficiency gains would thus be the price of gas at the
will emerge in procurement and landfall point which makes it possible
marketing. Prices of petroleum for the gas producer to incur the extra
products will also vary across the cost of making it tradable and yet
country reflecting actual costs and compete effectively in the end market
relative regional strengths of the oil with other suppliers of natural gas,
companies. LNG or alternate energy forms. This
 While the above idea works for traded net-back-price should then become the
goods, non-traded goods have to be minimum price for the domestic user
handled differently. Prices of non-traded of such natural gas. At this net-back-
commercial energy supplies can be price the gas supplier has the choice of
determined through competition selling gas domestically or taking the
among different producers (this investment risk and exporting the same
presumes multiple sources, low entry through a pipeline or by conversion to
barriers, and a competitive supply- LNG.
demand balance) or independently  Given limited production of natural
regulated on a cost plus basis including gas in India, economic considerations
reasonable returns (where competing may well require that domestically
supply sources are absent, entry barriers available gas be made available first to
are high and demand exceeds available those end-uses that best extract its
supply). The cost plus regulation must economic value among competing end-
take into account any realisation that uses. Such end-uses in India could, for
is achieved out of by-products priced example, be fertiliser, petrochemicals
and sold on competitive terms. To CNG vehicles and power in that order.
illustrate this point, the cost plus regime All of these end-users could compete
pricing natural gas in India does not for the natural gas available from
take the full credit for by-products as it domestic sources with a floor price
continues to price the C 2 /C 3 that would be equivalent to the net-
components of natural gas well below back-price that the producer could have
their traded or competitive prices. obtained as described above. Under
 To trade natural gas either through such a scenario natural gas would first
trans-national pipelines or as liquefied meet the fertiliser, CNG &
natural gas (LNG) requires a large petrochemical demand in full before
investment in pipelines or gasification/ reaching the power sector. In reality
regasification facilities (in small this situation is complicated by the
quantities natural gas is nearly non- fertiliser subsidy regime and the power
tradable). If sufficient gas is available pricing regime both of which allow
such investments may be worthwhile pass through of feedstock/fuel costs.
but carry risks related to long-term Again gas use may be considered
price for LNG. In a competitive set economically more justified for peaking
up, the producers of associated and power that must be priced differently
non-associated natural gas have the but it is not. There is also a Supreme
option of liquefying the gas and Court order that requires preferential
transforming it into a tradable allocation of gas for CNG vehicles.

Integrated Energy Policy

Unless these ground realities change production. Also, as long as fertiliser

gas may need to be allocated under a producers have feedstock cost as a pass
cost plus regulation. through gas price determined through
 However, with limited availability of competition would be distorted. The
natural gas, domestic prices in a case for allocating compressed natural
competitive set up would reach the gas to the transport sector is also strong
price of imported regasified LNG price as long as the Supreme Court’s mandate
or even exceed it if LNG import continues to require the use of CNG
facilities do not exist. Since some of by buses, taxis and auto-rickshaws. In
the priority uses of gas have externalities the long-run, however, air pollution
(e.g. the lower air pollution due to should be controlled by stipulating
CNG buses) in a situation of limited emission standards and not by
domestic availability, such a user would mandating a particular fuel, since air
be willing to pay a CNG premium pollution can also be controlled by use
over diesel, the alternate fuel. To avoid of clean diesel. There would then be
such distortions, till such time that a no need to allocate gas for transport
better demand-supply balance emerges, sector.
some allocation of gas to specific uses  It must be recognised that the bulk of
along with restraints on the price of Indian coal cannot be easily traded.
natural gas may be needed. Once The Power Sector consumes about 80%
adequate natural gas is available either of the domestic coal production. With
through LNG or piped gas imports or an ash content of over 40% and a
domestic natural gas, the marginal use calorific value averaging only 3500 kcal/
in India would likely be power kg., most of the coal sold to the power
generation where natural gas will have sector would have to be “prepared” to
to compete with domestic or imported be made tradable. This would entail
coal. Of course, a gas-based power plant both cost and additional investment.
can be a peaking plant in which case it In international trade, shipping and
will have to compete against alternative handling of coal typically accounts for
sources of peaking power. The market 30-35% of the cost of coal with an
determined price of natural gas would average calorific value of about 6000
be one at which power generated using kcal/kg. In India transport and handling
natural gas would have the same cost costs can reach 200% to 300% of the
as power generated through the pit head price of coal when moved to
cheapest alternative which would most Tamil Nadu, Karnataka, Maharashtra,
likely be a coal-based plant. New Goa, Gujarat, Rajasthan, Delhi,
domestic gas developments and the Haryana, Punjab and parts of UP. This
Joint Venture fields developed under reinforces the need for washing and
New Exploration Licensing Policy preparation of coal by the coal supplier
(NELP) rounds would need to take the since high grade energy used for
foregoing pricing policies into account. traction is used to transport a low
 How should one allocate natural gas in grade fuel and useless ash. Further, it
a shortage? If there were no other brings into focus the need to gradually
distortions, a competitive market would decrease cross subsidies in railways since
be the ideal mechanism. However, the rail freight for coal and other
given that a certain degree of self- commodities is higher than what can
sufficiency is considered desirable for be economically justified. Eliminating
domestic fertiliser production, cross subsidy surcharges on the
allocation of natural gas to fertiliser movement of primary energy sources
plants on a priority basis may be and other bulk freight items will not
required to ensure adequate domestic only make energy prices more

Energy Policy Options/Initiatives

competitive but will also shift freight prices cannot be determined in a

traffic from the far less energy efficient competitive market open to all users as
road sector to the railways. Offering long as there is a single dominant
open access to rail lines for private supplier and the largest coal consuming
movers may be another way to make sector, i.e. power, operates on a cost-
rail movements more efficient. As a plus regime making it indifferent to
result of high freight rates imported coal prices. Under the prevailing
coal is competitive at coastal locations conditions, a strategy for competitive
all along India’s Western Coast and price discovery is possible as follows:
parts of Tamil Nadu.
(i) High quality coking and non-
 The price of coal should vary with coking coal which is exportable
quality and its calorific content. Cost may be sold at trade parity prices
of production varies with the scale and as determined by the import parity
technique of production as well as with price at the nearest port minus
geological conditions. A central planner 15%. This practise is currently
is highly unlikely to have the needed being adopted for supply of good
information to set prices in a rational quality coking coal to the steel
manner. Only a competitive free industry.
market can do an efficient job of price (ii) Twenty percent of the production
determination. A competitive market may be sold through e-auctions.
requires that there is also competition Quantities to be sold through e-
on the supply side, i.e. that there are auctions from different mines must
many producers and no entry barriers be determined annually with an
to new producers. Entry of new players independently monitored monthly
in coal mining should be facilitated, mine-wise schedule that is enforced
trading of coal should be made by an independent coal Regulator.
completely free and coal prices should (iii) The remaining coal should be sold
be left to the market once competing under long-term Fuel Supply and
suppliers come into the market. Transport Agreements (FSTAs).
 Would this make coal expensive? As Regulated utilities should be
long as there is also competition on allowed upto 100% of their certified
the supply side, coal prices will remain requirements through FSTAs.
near the cost of production, including Other bulk consumers may have
a reasonable return on investment. New to be given partial FSTAs based on
entrants would whittle away any excess coal availability. Any shortfalls
profits. Even when domestic producers should be met through e-auction
take time to augment production, supplies or imports.
competition from imports will keep (iv) The pithead price of coal under
the price in check. At the ports FSTAs will have to be revised
domestic coal has to compete with annually by a coal regulator on a
imported coal and the delivered price basis that inter-alia takes into
of coal calorie cannot exceed the landed account prices obtained through e-
cost of imported coal calorie. This also auctions, the FOB price of
puts a natural constraint on coal prices imported coal (both adjusted for
at mine mouths since they have to be quality) and the production cost
below the landed cost of imports minus inclusive of return based on
the transportation cost from mine to efficiency standards.
port. If coal is exported, the mine (v) Coal prices should be made fully
mouth price cannot exceed FOB price variable based on Gross Calorific
minus the transport cost. Value (GCV) and other quality
 Given current ground realities coal parameters.

Integrated Energy Policy

 A competitive coal market is important Regulators are necessary for these sectors to set
for setting a proper price of natural prices that will mimic markets as outlined
gas. This is so because in a market that above.
does not have any constraints in gas
supply, the marginal use of gas will be 22. Consistency of Taxes Across Fuels:
power generation which places it in Currently Central & State taxes on various
competition with coal. forms of primary and secondary energy are a
 Entry barriers for new mining significant part of the final price. More
companies must be dismantled, and importantly, these taxes are not applied
time taken for awarding blocks, consistently, thereby resulting in significant
granting clearances and opening mines price distortions. Taxes are essential to raising
reduced significantly. India also needs revenues but the following policies are essential
to invest in port facilities and create to ensure that they minimally affect energy
coast based power generation capacities choices:
based on imported coal. These steps
 Central and State taxes on commercial
would facilitate trade and benefit from
energy supplies need to be rationalised
the discipline of competition that trade
so as to become neutral to fuel choices
provides. Improved port capacities and
coastal power plants with dedicated and investment decisions. Relative
jetties will not only yield competitive prices of fuels can be distorted if taxes
efficiency through imports but can also and subsidies are not equivalent across
facilitate movement of domestic coal fuels. In other words, taxes and
through coastal shipping, thereby subsidies should be such that producer
providing a competitive alternative to and consumer choices as to which fuel
the stretched bulk freight capacity of and which technology to use are not
railways. affected by them.
 All secondary energy resources should  The equivalence of taxes across
be priced based on competitive competing fuels should be uniform with
procurements by the service provider. respect to energy service delivered duly
Regulators must facilitate multiple adjusted for prevailing overall energy
suppliers for all secondary energy efficiency levels and any other specific
resources and energy services. Where externality relevant to specific fuels.
the service is provided by a natural This would result in the least distortion
monopoly such as a pipeline or a as it would take into account effective
distribution network, rents must be calories and the conversion efficiencies
independently regulated and, where of alternate fuels.
possible, competitively procured under  Making the energy sector fully
normative and regulated caps. All such “Vatable” or rationalising taxes and
natural monopolies must be pure eliminating differential taxation by State
common carriers and service providers Governments can reduce distortions.
with no interest in the content.
 Eliminating custom duty differentials
on crude and petroleum products,
21. A competitive price regime can be differential levies on alternate fuels,
established in the power sector once tariff
removing or applying a uniform low
based bidding becomes the norm during the
custom duty on all imports for energy
11th Plan period. Similarly, prices of petroleum
sector projects/investments/supplies are
products at the refinery gate can be freed and
other measures critical to rationalising
competitively set. However, coal and gas prices
taxes in order to minimise distortions
cannot be left to the market till a number of
in energy markets. This can be done in
coal suppliers emerge, gas availability improves,
a revenue neutral way.
or till fertiliser prices are deregulated. Thus,

Energy Policy Options/Initiatives

 Removal of misplaced incentives such  Certain conservation objectives may

as those available to Mega Power be better served through appropriate
Projects is needed. While the rest of regulations such as minimum vehicle
the world is recognising the higher occupancy ratios, minimum fuel
efficiency of distributed generating efficiency norms, or even allowing odd
facilities, India is providing incentives and even numbered vehicles on road
to Mega Projects. Consequently, State on alternate days etc.
Governments opt for Mega projects  Taxes and subsidies to create differential
that claim the incentives and then swap pricing and achieve the above objectives
power among themselves to meet the run the risk of creating perverse
guidelines of the Mega power policy incentives. As an example, lower
thereby creating unnecessary taxation of diesel to boost public
transmission capacity and movement transport has several negative outcomes
of power back and forth. There should such as adulteration, less emphasis on
be no discrimination in available efficiency in road transport carriage,
incentives based on size or type of agricultural and off-road applications, a
technology or fuel used. negative environmental impact and the
 In fact, incentives should be similar for spawning of diesel passenger vehicles
each of the energy sub-sectors so that enhancing all of the foregoing negatives.
balanced development takes place. Any Thus care should be exercised in using
tax concession or duty exemption taxes and subsidies.
provided should be available to all
energy sub-sectors unless it supports a 24. Environment is not the only externality
well-documented economic benefit. that can be managed through differential tax
rates. Differences in taxes may be justified
based on documented benefits from exploitation
23. Dealing with Externalities: While of domestic resources, maintaining international
taxes to raise revenues should be levied in a competitiveness, creation of employment or
way that least affect fuel/energy choices, similar objectives.
environmental taxes and subsidies can be used
to actually affect fuel/energy choices. Some 25. Subsidies for the Weaker Sections:
options available to deal with environmental Subsidies designed to benefit weaker sections
externalities could be: of the society remain poorly targeted and result
 A consistent application of the “polluter in serious price distortions and malpractices.
pays” principle or “consumer pays” Most of the LPG subsidy is actually benefiting
principle should be made to attain the rich and the upper middle classes. A large
environmental objectives at least-cost part of the PDS kerosene is used for adulterating
where prescribed environmental norms diesel and burned in standby generating sets.
are either not applied consistently or Agriculture and household subsidies on
not being adhered to. Methodologies electricity provide the basis for theft of power
need to be developed to do this by industrial and commercial consumers. The
consistently. following policy options exist to address this
 Using incentives, cross subsidies, tax concern:
breaks for public investments to  Moving the prevailing subsidies and
maximise the more energy efficient rail cross subsidies in the energy sector
freight, electrification of railways, designed for the weaker sections of the
building double decked freight trains, economy to the Central and State
improved mass transportation options, Budgets will go a long way in removing
R&D for efficient engines or fuel price distortions, providing optimal
alternatives etc., could also help mitigate price signals and eliminating
environmental concerns. malpractices.

Integrated Energy Policy

 Subsidies that cannot be targeted in a Director should have a direct or indirect

fool-proof manner should be made beneficial interest in the company exceeding a
available as minimal entitlements to prescribed monetary equivalent of say Rs.2
everyone. Consumption in excess of lakhs, in any financial year.
the minimum should be charged at full
cost of supply. Further, entitlements 28. The Dismantling of Entry Barriers:
should be made tradable if not Entry of other firms from within the central,
consumed by requiring the service state or private sectors into all sub-sectors of
provider to cash the entitlement at the energy should be facilitated. Thus, open access
full marginal cost of supplying the to distribution networks, the removal of
underlying energy resource or service. restrictions on captive coal mines, allocations
 Another way to provide subsidies for coal, oil and gas blocks in competitive and
efficiently is to make service providers transparent ways and creating a level playing
bid for making the entitlements field for all players must be undertaken to
available to the beneficiaries at least- generate competition.
cost to the State.
29. Developing Long-Term Debt
Markets: The Central and State Governments
26. Institutional Reforms for
as well as term lending institutions must seed
Competitive Efficiency: Neither appropriate
the market for long-term (20 years plus) debt.
pricing nor independent regulation by
This should be available to finance all
themselves, can lead to competitive efficiency
infrastructure, particularly energy
if dominance by one or two large public or
infrastructure. Options could include one or
private sector units continues and if the public
more of the following:
sector remains handicapped by lack of authority
to take commercial decisions. Ease of entry for
(a) capital market based instruments;
other players from both public and private
sectors and competition from the world market (b) debt structures with 20 year repayment
will create incentives to be efficient. schedules including bullets at the end
of years 10-12 along with undertakings
27. Public Sector Autonomy to Ensure a for take-out financing of the bullets as
Commercial Culture: All public sector they fall due;
companies must be managed by independent (c) guarantees for later maturities;
boards with no more than two government (d) twenty year repayment terms with
nominated Directors including just one from built-in refinancing every 5 years;
the incumbent Ministry. All other Directors
(e) partial risk guarantees and other similar
should be nominated independently with
structures that effectively provide 20
necessary sitting fees and consequent
year plus funding for the energy sector.
responsibilities under the Companies Act. No

Policy for Energy Efficiency and Demand Side Management
Chapter VI

Policy for Energy Efficiency

and Demand Side Management

6.1 LARGE POTENTIAL FOR been sluggish. The 8th Five Year Plan made a
SAVING ENERGY provision of Rs.1,000 crores for energy
efficiency to provide targeted energy savings of
The importance of energy efficiency 5,000 MW and 6 Mt in the electricity and
and demand side management (DSM) has clearly petroleum sectors respectively. There is no
emerged from the various supply scenarios and clear quantification of the actual costs and
is further underlined by rising energy prices. savings achieved. The 9th Five Year Plan
Efficiency can be increased in energy extraction, proposed the passing of the Energy
conversion, transportation, as well as in Conservation Act and the setting up of the
consumption. Further, the same level of service Bureau of Energy Efficiency.
can be provided by alternate means that require
less energy. The major areas where efficiency 3. The 10th Five Year Plan proposes
in energy use can make a substantial impact benchmarking of the hydrocarbon sector
are mining, electricity generation, electricity against the rest in the world. It also suggests
transmission, electricity distribution, pumping demand side management specifically in the
water, industrial production and processes, transport sector. The target for energy savings
transport equipment, mass transport, building in the 10th Plan is 95,000 Million Units which
design, construction, heating ventilation and is about 13% of the estimated demand of
air conditioning, lighting and household 7,19,000 Million Units in the terminal year of
appliances. It may be noted that a unit of the 10th Plan. However, there is no specific
energy saved by a user is greater than a unit allocation to meet the energy savings targets.
produced as it saves on production, transport,
transmission and distribution losses. Thus a 4. A study prepared for the Asian
“Negawatt” (a negative Megawatt) produced Development Bank (ADB, 2003) estimated an
by reducing energy need saves more than a immediate market potential for energy saving
Megawatt generated. of 54,500 million units and peak saving of
9,240 MW. Though there is some uncertainty
2. In the 1990s, several studies have in any aggregate estimates, it is clear that cost-
estimated the potential and cost effectiveness effective saving potential is at least 15% of total
of energy efficiency and demand side generation through DSM. Additional savings
management (DSM) in India7. Despite these are possible on the supply side through
potential studies, actual implementation has reduction in auxiliary consumption at

Nadel, S., V. Kothari, and S. Gopinath (1991): Opportunities for Improving End-Use Electricity Efficiency in
India, American Council for an Energy-Efficient Economy, Washington, DC.
Banerjee R., Parikh J.K. (1993): Demand Side Management in Power Planning – An exercise for H.T. Industries
in Maharashtra, Economic and Political Weekly, August, 7-14, pp. 1659-70.
Parikh J.K., Reddy B.S., Banerjee R. (1994): Planning for Demand Side Management in Electricity Sector, Tata
Mc-Graw Hill Company Ltd., New Delhi.
Parikh J.K., Reddy B.S., Banerjee R. & Koundinya S. (1996): DSM Survey in India: Awareness, Barriers and
Implementability, Energy, Vol. 21, No. 10, pp. 955-966.

Integrated Energy Policy

generating plants and lowering technical losses 5. Since Energy Efficiency (EE)/DSM
in transmission and distribution. At present an schemes are often cost effective, is it necessary
estimate of the total volume of the energy to have policy interventions? In actual practice
efficiency consulting business (audit, there are several barriers that constrain the
performance contracting, engineering, technical adoption of EE/DSM schemes including high
assistance and consultancy) is less than 1% of transaction costs, lack of incentives to utilities
its potential (DSCL, 2004)8. who perceive DSM as a loss of market base,

BOX 6.1
Bureau of Energy Efficiency (BEE)
BEE was established under the Energy Conservation Act, 2001 with effect from 1 March,
2002 to meet the following objectives:
 To exert leadership and provide policy framework and direction to national energy
conservation and efficiency efforts and programmes.
 To coordinate energy efficiency and conservation policies and programmes and take it to
the stakeholders
 To establish systems and procedures to measure, monitor and verify energy efficiency
results in individual sectors as well as at a macro level.
 To leverage multi-lateral and bi-lateral and private sector support in implementation of
Energy Conservation Act and efficient use of energy and its conservation programmes.
 To demonstrate delivery of energy efficiency services as mandated in the EC Act through
private-public partnerships.
 To interpret, plan and manage energy conservation programmes as envisaged in the
Energy Conservation Act.
Actions taken by BEE so far are given below:
 BEE has conducted National Certificate Examinations for selection of Energy Managers
and Energy Auditors.
 Energy auditing agencies for accreditation on the basis of their energy auditing capabilities
and institutional set-up have been cleared by BEE.
 Draft norms for fixation of specific energy consumption in Cement and Pulp & Paper
Industries have been framed and these norms are under discussion prior to finalisation.
 Task forces in 7 Energy Intensive Sectors have been set-up and best practices on energy
conservation are being discussed by these task forces.
 Industries are being motivated to take up energy efficiency measures through institution
of National Energy Conservation Award Scheme of Ministry of Power.
 Energy Audits for 9 Govt. buildings have been completed that include Rashtrapati
Bhawan, Prime Minister’s office, South Block (Defence Ministry), Rail Bhawan, Sanchar
Bhawan, Shram Shakti Bhawan, Transport Bhawan, R&R Hospital, Delhi Airport and All
India Institute of Medical Sciences (AIIMS) and implementation plans have been prepared.
 Energy Conservation Building Code has been prepared and is under review by the

DSCL (2004): Catalysing Markets Through Innovative Financing and Competitive Procurement for Energy
Efficiency, G.C. Datta Roy Presentation available at www.bee-india.nic.in

Policy for Energy Efficiency and Demand Side Management

inadequate awareness, lack of access to capital, Government. A cess on fuels and

perceived uncertainty concerning savings, a electricity (adjusted for the cess on fuels
high private discount rate, limited testing used for generating electricity) can be
infrastructure with which to ascertain savings justified as a user charge. BEE staffing
and an absence of a reliable measurement and should be substantially strengthened.
verification regime. Policy interventions are  Existing national energy efficiency
required to address these barriers.
organisations like the Petroleum
Conservation Research Association
6. To conserve petroleum products, the
(PCRA) should be merged with the
Petroleum Conservation Research Association
BEE. This will ensure that the BEE is
(PCRA) was set-up by Ministry of Petroleum
responsible for energy efficiency for all
and Natural Gas (MOPNG) in 1978. The
sectors and all end-uses.
Bureau of Energy Efficiency (BEE) was
established under the Energy Conservation Act,  Based on the recommendations of the
2001, with effect from 1st March, 2002, under merged autonomous body the
the Ministry of Power (MOP). The mission of government could directly provide
BEE is to develop policies and strategies on funding support to financial institutions
self-regulation and initiate market interventions for promoting energy efficiency
aimed at reducing the energy intensity of the programmes.
Indian economy. While BEE has made a  Energy efficiency and conservation
beginning (see BOX 6.1), a lot more needs to be programmes and standards should be
done. BEE does not have a fulltime head and, established and enforced. The BEE
as of September 2005, had only 4 professionals should develop such standards for all
on staff. energy intensive industries and
appliances as well as develop modalities
7. Since nearly one third of total energy for a system of incentives/penalties for
is used for domestic cooking, efficiency of the compliance/non-compliance. These
cooking process should be given a high priority, standards should be at levels equal to
particularly since this process is currently or near current international norms.
marked by poor level of efficiency.
 Mechanisms for independent
8. To promote energy efficiency and monitoring and verification of achieved
conservation we need to create an appropriate energy savings and the cost effectiveness
set of incentives through pricing and other of programmes must be established.
policy measures. Barriers to the adoption of Evaluation reports should be
efficient technologies have to be removed and quantitative and made publicly
encouragement to develop and deploy more available. An annual report of the
efficient technologies has to be provided. Public investments and savings made through
policy can set the pace for such development specific energy efficiency and DSM
by offering attractive rewards and imposing programmes should be prepared by the
biting penalties. BEE and reported to the Parliament.
The feedback from the monitoring
9. An enabling institutional framework is exercises should help in modifying
essential to achieve the objectives listed above. programme designs.
Details of such an institutional framework are  Truthful labelling must be enforced
listed below: with major financial repercussions if
 The BEE should be made an equipment fails to deliver stated
autonomous statutory body under the efficiencies. In extreme cases, one can
Energy Conservation Act and be resort to black listing errant suppliers
independent of all the energy ministries. at consumer information web sites and
It should be funded by the Central on government procurement rosters.

Integrated Energy Policy

 Verification and labelling requires transaction costs need to be designed,

testing laboratories. A programme for tested with different institutional
setting up such laboratories in public, arrangements, with different incentives,
private and the NGO sectors is needed. and with varied implementation
 National Building Codes should be strategies. Innovative programme
revised to facilitate and encourage designs can then be rewarded.
energy efficient buildings.  Implementing Time-of-Day (TOD)
 Large scope exists to make buildings Tariffs: All utilities should introduce
energy efficient. Construction materials TOD tariffs for large industrial and
are energy intensive and the use of commercial consumers to flatten the
appropriate materials and design can load curve. Utilities should support
save a significant amount of energy not load research to understand the nature
only in construction but also during of different sectoral load profiles and
use by building occupants. Innovative the price elasticities of these loads
and energy efficient building between different time periods to
technologies should be widely correctly assess the impact of differential
publicised through an annual prize. tariffs during the day. The utility should
Reducing energy needs for heating and have focus group meetings with
cooling by orientation, insulation and industrial or large commercial
using temperature differences in earth consumers, document a few potential
or water at some depth could also be case studies illustrating the potential
significant. for shifting loads and provide
information and analytical support
 Improvement in energy efficiency and
along with implementation of the TOD
DSM require actions by a large number
of persons and institutions. To mobilise
them, the first task is to create  Facilitating Grid Interconnection for
awareness of the scope of possibilities Cogenerators: Enforce mandatory
and the extent of gains one can make purchase of electricity at fixed prices
through such measures. from cogenerators (at declared avoided
costs of the utility) by the grid to
 Promote and facilitate energy service
encourage cogeneration. The buying/
companies (ESCOs) that can identify
selling price should be time –
energy saving options and provide
differentiated and declared by the state
technical support needed for execution
regulatory commissions at the time of
to industries and commercial
each tariff notification.
 Improving Efficiency of Industrial,
Municipal and Agricultural Water
10. Some policy initiatives can yield quick
Pumping: Institute measures that
returns with small effort just like plucking low
encourage adoption of efficient
hanging fruits. These could include —
pumping systems and shifting of
 Regulatory commissions can allow pumping load to off-peak hours. The
utilities to factor EE/DSM expenditure public sector should be mandated to
into the tariff. do so, and the private sector could be
 Each energy supply company/utility encouraged to do so through time-of-
should set-up an EE/DSM cell. The day pricing. This will help reduce peak
BEE can facilitate this process by demand and energy demand.
providing guidelines and necessary  Instituting an Efficient Motors
training inputs. A large number of Programme: This initiative should
pilot programmes that target the focus on manufacturers/rewinding
barriers involved and have low shops and target market transformation,

Policy for Energy Efficiency and Demand Side Management

by providing incentives to supply 11. Medium to long-term initiatives could

energy efficient motors. include —
 Instituting an Efficient Boiler  Adoption of a least-cost planning and
Programme: This initiative should policy approach that ensures that
focus on industry and provide energy efficiency and DSM have a level
incentives for replacement of old playing field with supply options. The
inefficient boilers. regulatory commissions should invite
 Promoting Solar Hot Water Systems: bids for DSM while approving new
This programme should aim at both capacity additions. Thus, if a state
industrial and household needs of hot requires an additional peak demand of
water. 1,000 MW over the next five years, the
utility can ask for bids from
 Promoting Variable Speed Drives:
Independent Power Producers (IPPs)
All large industries should be required
as well as Energy Service Companies
to assess suitability of variable speed (ESCOs). For example, an efficient
drives for their major pumping and fan lighting programme may offer to save
loads. 150 MW at a cost of Rs.5,000/peak
 Undertaking Efficient Lighting kW saved. This would then become
Initiative: Utilities should launch pilot part of the least-cost plan before putting
efficient lighting initiatives in towns/ in new power plants that may cost
cities (similar to the Bangalore Rs.40,000-50,000/peak kW generated.
Electricity Supply Company Similar exercises should be adopted for
(BESCOM) programme in Bangalore). the oil sector.
Features should include warranties by  Initiate benchmarking exercises for
manufacturers and deferred payment different industrial sectors, hotels,
through utility bill savings. hospitals, buildings, etc. In each
(International examples are available at segment, the benchmark would provide
www.efficientlighting.net) the theoretical minimum energy
 Improving Cooking Efficiency: consumption, the best practice and
Efficiency of cooking stoves should be specific steps required to reduce energy
improved by targeting manufacturers consumption. A road map (5-10 years)
and requiring them to label stoves so should be created for energy efficiency
that the consumers know the cost of improvements in each industry
fuel used. Energy efficient utensils and segment. The BEE can catalyse the
efficient cooking practices should be benchmarking process by bringing
promoted as they offer a very large together energy auditors, researchers,
scope for reducing fuel consumption end-users and providing the required
(see www.bachatcooker.com). funding.
 The Government (Central/State),
 Making Energy Audits Compulsory
Railways, Defence and public sector
For All Loads Above 1 MW: Energy
units constitute a large market segment
audits should be done periodically and
for energy intensive products. The basis
be made mandatory for public
for selecting a vendor is usually only
buildings, large establishments
the lowest initial cost. It is
(connected load >1 MW or equivalent
recommended that the procurement
energy use >1MVA) and energy
process be modified based on the
intensive industries.
minimum annualised life cycle cost (see
 Reaping Daylight Savings: Saving BOX 6.2). A manual should be prepared
daylight by introducing two time zones establishing the methodology for
in the country can save a lot of energy. annualised life cycle costing with a

Integrated Energy Policy

simple spreadsheet package to enable  Shifting Freight Traffic to Railways:

easy implementation. Improve railway service to win back
 Though life cycle costing seems the long-distance freight traffic carried
particularly relevant for appliance by trucks today that consume five times
purchase since appliances are often as much diesel per net tonne kilometer
bought without consideration of of freight carried. Construction of
operating costs, it should be used for dedicated freight corridors and
all decision-making and alternatives dismantling of the Container
should be compared in terms of Corporation (CONCOR) monopoly
expected present discounted values of are critical measures for this. Already,
life cycle cost. the railways have permitted private
operators. Carrying 3000 billion tonne
 Increasing Efficiency of Coal-Based
kilometres (Bt-km) of freight (half of
Power Plants: Require NTPC and
projected freight traffic in 2031) by rail
SEBs to acquire technology to enhance
instead of trucks can save approximately
the fuel conversion efficiency of the
50 Mt of diesel per year. To attract
existing population of thermal power
freight traffic, railways must ensure
stations from an average of 30% to
timely and secure delivery. This can be
35%. No new thermal power plant
accomplished by operating scheduled
should be allowed without a certified
container trains and by charging freight
fuel conversion efficiency of at least
on the container, rather than the
38-40%. While competitive tariff based
content, so that the customers can lock
bidding can balance fuel efficiency
and seal it.
against capital cost and provide
incentives for efficiency improvement;  Promote Waterways: Water transport
in the absence of such competition the is energy efficient. Make investment to
pace of efficiency improvement needs provide the needed infrastructure to
to be forced. facilitate water transport.

BOX 6.2
Initial Cost and Life Cycle Cost
In many cases of energy equipment the annual costs of operation predominate as compared
to the capital cost. However the operating costs are often not considered at the time of the
purchase, as they are part of the total electricity bill and recurring maintenance costs. The
purchase decision is based on the initial cost. Table shows the initial cost and the annualised
life cycle cost (ALCC) for some typical energy appliances based only on the annual electricity
cost since it is the main cost component for these products.
Table: Comparison of Initial Cost and Life Cycle Cost

Sl. Equipment Rating Initial cost Annual ALCC Cost of

No. (Rs) Electricity (Rs) electricity as
Cost (Rs) %of ALCC

1. Motor 20 hp 45,000 600,000 605,720 99.0

2. EE Motor 20 hp 60,000 502,600 512,700 98.0
3. Incandescent Lamp 100 W 10 1168 1198 97.5
4. CFL 11 W 350 128 240 53.6

Policy for Energy Efficiency and Demand Side Management

 Promote Urban Mass Transport: that can burn varying proportions of

Promote urban mass transport by ethanol-blended fuels.
providing quality services which may
12. At an 8 percent growth rate, we will
be partially financed by imposing
nearly double our capital stock in nine years.
congestion, pollution and parking
Energy using equipment and appliances will
charges on those who use personalised
also spread rapidly. Thus, the manufacturers of
motor transport. Plan for future mass
equipment and appliances should be targeted
transport corridors in smaller cities and
to force the pace of improvement in energy
acquire the right-of-way. As the city
efficiency. The following steps may be taken
grows, the permissible built up area
to improve efficiency of energy consuming
may be gradually increased. However
the additional right to build should
remain with the local government,  Mandate time bound targets of energy
which it can auction to finance mass efficiency for industrial equipment,
transport and other urban boilers, and appliances such as motor
infrastructure. vehicles, pump sets, refrigerators, water
 Fuel Efficient Vehicles: Promote heaters, boilers, etc.
hybrid vehicles in India, which are  Create competition among
internationally already available manufacturers to be the first to achieve
commercially. Also promote the the target through a “golden carrot”
already commercial flexi fuel vehicles which is a large monetary reward to

Figure 6.1
Reduction in the Energy Consumption of Refrigerators Sold in the United States of America

Source: Wiel, S. (2001)

9 Wiel, S. (2001): Introduction, Energy Efficiency Labels and Standards: A Guidebook for Appliances,
Equipment, and Lighting, S. Wiel and J.E. McMahon, eds. (Washington, D.C., Collaborative Labelling and
Appliance Standards Programme (CLASP).

Integrated Energy Policy

the first one to commercialise products payment security mechanisms (this may
which provide, say a minimum saving be required for projects in
of 20% over the best existing design municipalities, government buildings),
within a given time frame. The Super partial credit guarantees, or venture
Energy Efficient Refrigerator Project capital. Financial institutions may be
in the US is a successful example of encouraged to provide these.
such a policy initiative(see Figure 6.1).  Encouraging different business models
 Mandate clear and informative labelling – For ESCOs to be successful in India
in well-designed standardised forms for a variety of alternative business models
equipments and appliances. Combine need to be attempted to determine the
this with consumer awareness appropriate ones in the Indian context.
programmes that illustrate the savings The BEE could facilitate 15-20
and possible associated gains. demonstration ESCO projects in
 Strengthen appropriate labelling by different sectors. These should be well-
creating regional facilities for testing documented, independently monitored
and certification. Such a labelling/ and made available to the public. This
standards initiative should be supported will encourage more entrepreneurs to
by analytical studies to establish invest in ESCOs.
equipment consumption benchmarks  ESCOs as producers of “Negawatts”
(minimum achievable energy may be given the same tax breaks that
consumption targets). are available for renewable energy
programmes or other energy
13. Industries may need technical support investments.
to identify and execute energy saving options.  Providing an institutional framework
Energy service companies (ESCOs) can provide for independent monitoring &
such support. We need to promote and facilitate evaluation of projects delivered by
ESCOs. Some possibilities include— ESCOs. This would involve
 Financing Support – The support for independent testing laboratories and
ESCOs could be in the form of setting benchmark standards.

Policy for Renewable and Non-Conventional Energy

Policy for Renewable and Non-

Conventional Energy Sources
An examination of India’s primary impacts (green house gas emissions mainly due
energy balance shows that renewables account to carbon dioxide) associated with fossil fuel
for about 32% of primary energy consumption use have resulted in an increased emphasis on
in 2003-04. Of this, the major contributor is renewables. Figure 7.1 shows a listing of some
traditional biomass mainly used in cooking of the commonly used renewable options.
followed by electricity generation from large Renewables can be used for space heating,
hydro plants. The actual share of modern cooling, water pumping, cooking and for almost
renewables (see Figure 7.1) in India’s energy any end-use that is presently met by fossil
mix is significantly lower (about 2% of the fuels.
3. As the country is short of energy
2. Adverse local environmental impacts resources the need to develop all energy sources
(SOx, NOx, SPM) and global environmental including renewable options is paramount. Our

Figure 7.1
Renewable Energy Options

Integrated Energy Policy

efforts in the past have not been as successful mandated in many countries (see Table
as we would have liked. Many renewables have 7.2). The regulated feed-in tariffs should
high initial costs (see Table 7.1). Often have time-of-day features that improve
development efforts have been sub-critical and economics of renewable power.
subsidy driven growth has not provided  With the capital subsidy available for
incentives for technical improvements or cost improving rural access having become
reduction. There are also externalities of the uniform for both remote and grid-
use of renewables, the benefits of which do not connected villages/habitations, Ministry
accrue to the user.

Table 7.1
Capital Costs and the Typical Cost of Generated Electricity from the Renewable Options
Sl. Source Capital Cost Estimated Cost of Total Installed
No. (Crores of Generation Capacity
Rs/MW) Per Unit (MW)
(Rs./kWh) (upto 31.12.2005)
1. Small* Hydro-Power 5.00-6.00 2.50-3.50 1748
2. Wind Power 4.00-5.00 3.00-4.00 4434
3. Biomass Power 4.00 3.00-4.00 377
4. Bagasse Cogeneration 3.00-3.50 2.00-3.00 491
5. Biomass Gasifier 2.50-3.00 3.00-4.00 71
6. Solar Photovoltaic 25-30 15.00-20.00 3
7. Energy from Waste 5.00-10.00 4.00-7.50 46
*<25 MW

4. Renewable energy may need special of Power (MOP) and Ministry of Non
policies to encourage them. This should be Conventional Energy Sources (MNES)
done for a well-defined period or up to a well- need to better coordinate the outcomes
defined limit, and be done in a way that of RGGVY, MNES’s rural
encourages outcomes and not just outlays. electrification programme, and the
Suggestions include: newly developed pilot projects under
Village Energy Security Programme.
 Capital subsidies which only encourage
Similar coordination is also called for
investment without ensuing outcome
between the rural electrification
should be phased out by the end of the
programs, telecom and road
10th Plan.
connectivity initiatives and certain
 Power Regulators must seek alternative social sector programs. Bundling of
incentive structures that encourage services is likely to achieve greater
utilities to integrate wind, small hydro, success and is more likely to yield
cogeneration etc., into their systems. sustainable structures that are replicable
All incentives must be linked to energy through separate franchises.
generated as opposed to capacity
created. 5. Price subsidy for renewables may be
 Respective power Regulators should justified on several grounds. A renewable energy
mandate feed-in laws for renewable source may be environmentally friendly. It
energy where appropriate as provided may be locally available making it possible to
under the Electricity Act and as supply energy earlier than possible through a

Table 7.2
International Feed-in Tariffs
Tariff in Rs./kWh**
Conventional Wind Photovoltaics Biomass
Domestic Commercial (Windy sites) (Non windy) (Cap.<5 MW) 0-0.5 MW 0.5-5 MW 5-20 MW
Germany* 6.0 2.3 1st 5 yearsa 5.2 5.2 27.6 5.85 5.27 4.99
(2001) (2002) c
Next 15 years 3.4 4.6 Guaranteed for 20 years
(Cap. (Windy (Non (Inter-
<12 MW) sites) windy) mediate)

France 5.21 1.83 1st 5 years 4.6 4.6 4.6 8.6 17.2
(2002) (2002) Next 15 years 1.7 4.6 3.4 (Mainland) (Overseas)

(Cap.<50MW)d (Cap.<5kW) (Cap>5kW)

Spain+ 5.29 2.00 Fixed 3.6 22.7 12.4 3.5
(2001) (2001) OR OR
Premium of 1.5 20.63 10.32 1.4
Austriae 6.48 2.54 4.5 26.9 to 4.4 to
(2002) (1995) 34.4 9.2
* a
2002 data Since 2002 tariff reduced by 1.5% per year
+ b
2003 data Sites that achieve more than 150% of reference output
For new installation price reduced by 5%. The obligation to pay ends when total installed capacity reaches 1000 MW
Premiums and tariff set by Government
Uniform fixed price for 13 years (2003)
** Based on exchange rate of Rs.57.31 Per Euro (December-2003)
Source: T. Stenzel, T. Foxon, R. Gross (2003): Review of renewable energy development in Europe and the US, Report for the DTI Renewables Innovation
Review, ICCEPT, Imperial College, London, October 2003.
Policy for Renewable and Non-Conventional Energy Sources

Integrated Energy Policy

centralised system. It may also provide the implementation mechanism. Different

employment and livelihood to the poor. policy experiments for implementation of DG
in different regions should be attempted. The
6. The environmental subsidy for village panchayat aided by the state energy
renewables could be financed by a cess on non- agency and technical experts should decide the
renewables and fuels causing environmental appropriate technology option (biogas, biomass
damage. gasification, wind-diesel, micro-hydel, bio-oil-
engine) for their village. For isolated systems it
7. All price subsidies should be linked to is beneficial to link the DG system to an
outcomes. Thus, for example, giving a capital industrial load (cold storage, oil mill etc.) to
subsidy on a wind power plant provides improve its load factor and hence its economic
encouragement to set-up a power plant but viability. The capital subsidy should be based
does not provide any additional incentive to on the annual generation, and should preferably
generate power. Instead a price premium on be in the form of an annualised subsidy to be
feed-in tariff for wind power into an existing provided based on actual generation. These
power grid ensures outcome for the outlay. projects can be set-up by panchayats,
For grid connected renewables, Regulatory independent power producers or renewable
Commissions (RC’s) should provide feed-in energy service companies. A mechanism of
laws to permit renewables to supply electricity bidding can be used to obtain the annualised
to the grid. RC’s should ensure that the subsidy level sought for sustainability. For
renewables are given a tariff at least equal to example, if it is decided to electrify a village
the avoided cost of generation. using a dedicated producer gas engine and
biomass gasifier, bids may be obtained for the
8. A premium on feed-in tariff may not support required annually for the concession
benefit a stand alone plant in a remote area. period per kWh of actual generation. The
For such a plant, a capital subsidy may be project would then be given to the lowest
required. Such a capital subsidy, however, can bidder. Such a programme would require actual
be linked to the amount of power actually tracking of annual generation. This is feasible
generated if it is given in the form of Tradable using existing technologies of remote
Tax Rebate Certificates (TTRCs). The rebate monitoring and would add only incrementally
claim would then become payable when to the system cost.
electricity is generated and would be linked to
the amount of electricity generated. This will 11. An annual renewable energy report
also encourage earlier exploitation of better should be published providing details of actual
wind sites. The need to keep the TTRCs performance of different renewable technologies
tradable arises from the possibility that small at the state and national levels. This would
generators may not have adequate taxable include actual energy supplied from different
income to benefit fully from tax rebates. renewable options, availability, actual costs,
operating and maintenance problems etc. The
9. In areas where there is no electricity monitoring should also encompass other
grid, there should be minimum clearances/ parameters like user profiles (in order to ensure
permissions required for setting up a that government support is indeed going to
Distributed Generation (DG) system. Supply poor households), as well as livelihood
companies/entrepreneurs should be free to set- outcomes such as increased income, improved
up micro-grids and recover revenues from food security and gender impacts. In fact, this
customers. This is already provided for in the also applies to rural electrification, where the
Electricity Act. Each state should clearly define monitoring parameter should not just be the
guidelines to facilitate this process. villages and/or hamlets electrified. Monitoring
must be based on actual households electrified,
10. A critical issue in distributed generation hours of electricity received by these households
for rural electrification is the cost recovery and and the various impacts described above. In

Policy for Renewable and Non-Conventional Energy Sources

addition to monitoring the performance of to connect to the grid should be fixed

devices, the assessment should critically review in advance before the bidding.
the programme objectives and the strategy  Wind Power: For wind power, site
adopted in order to suggest course corrections selection is freer than hydro-power and
as required. Information on any system that is wind plants can be set-up on private
receiving government support should be made land. Thus there may be a need to
publicly available. It is essential to ensure that auction only sites on public property.
independent assessment of performance is done The same two types of auctions may
for all renewable projects receiving government be followed as described above for
funding. This will help in tracking programmes, hydro-power plants. Where cultivation
avoiding repeating mistakes and providing mid- is not affected, a wind turbine
course corrections. installation should be permitted on
agricultural land without requiring its
12. The Department of Science and conversion to non-agricultural land.
Technology (DST) has set up Technology
 Bio-Diesel: The production of bio-
Business Incubators for entrepreneurs for
diesel needs to be encouraged in a way
renewable energy, energy efficiency and rural
that primarily involves outcome related
energy. However, entrepreneurs also need
fiscal incentives for its economic
finance. Financial institutions should be
production. Certain vegetables oils can
encouraged to set-up Venture Capital Funds
be directly mixed with diesel, especially
for energy entrepreneurs. DST should monitor
for stationary applications, in certain
actual success on the ground and reshape its
proportions without any significant
programme based on actual results/feedback.
processing. Transesterification of
industrial oils (with high levels of free
13. The following specific policies to
fatty acids (FFA) or vegetable oils can
promote various renewables are recommended:
yield bio-diesel which can substitute
 Mini Hydro: A detailed survey should fossil fuel-based diesel in both stationary
be carried out to identify potential and motive applications. Non-edible oils
sites. Identified sites should then be such as those obtained from Jatropha
auctioned. For plants which are not and Karanj are gaining attention for
connected to an existing grid, bids for production of bio-diesel in India.
the lowest tariff with a pre-specified Currently, significant uncertainty
premium in the form of TTRCs should prevails over the exact yields from
be invited. For village level plants, the Jatropha or Karanj cultivation with
entrepreneurs should be encouraged to estimates ranging from a low of 0.4
supply power to meet other tonne of diesel per hectare to 1.0 tonne
requirements such as agro processing of diesel per hectare.
and milling and if such productive loads Bio-diesel can be encouraged in
are not available, the entrepreneurs alternative ways. One way is to
should develop sustainable integrated encourage oil companies to take the
schemes that aim at developing the lead in developing large-scale plantations
community as a whole. If the plant can directly through contract farming by
feed into a grid, the grid should be individual farmers, self-help groups
required to accept power at the (SHGs), rural cooperatives, panchayats
regulated feed-in tariff with time-of- etc. In this case the problem of pricing
day features, and the plant site should of seed and bio-diesel are internalised.
be auctioned off for minimum premium Another way is to let organised
in the form of TTRCs linked to industries, self-help groups or
electricity generation. The cooperatives on the line of Amul,
responsibility for investments needed pursue Jatropha, Karanj and other

Integrated Energy Policy

suitable plantations. They may sell the based on end-use. A duty of 65% is
oil extracted or set up transesterification imposed on use of such residual
units individually or collectively to sell industrial oils for conversion to bio-
bio-diesel either to oil companies for diesel. If this duty is reduced to 5% as
blending or directly to consumers in in the case of crude oil, it would be
jerry cans. possible to produce diesel based on
Up to 100% tax rebate can be provided such imports of industrial oil at about
for investments made in plantations Rs.25/litre. This may be sold directly
and bio-diesel processing through to consumers by producers or to oil
TTRCs linked to actual bio-diesel/seed firms without levying any of the
production. In addition, TTRCs could current taxes and levies imposed on
include a premium for use of fossil based diesel. Again, the oil
renewables, employment generation companies may be required to pass on
and an environmentally preferable fuel. bulk of the benefit to the consumers.
In cases where the TTRCs are acquired Thus the following policies are
by the oil companies, organised recommended for bio-diesel:
industry and/or large cooperatives, a • Support Jatropha, Karanj and other
competitive environment with multiple similar species, with incentives as
players would ensure that the benefits suggested above.
are shared with the ultimate grower. • Since the end objective is to
Further, this green fuel can be made promote bio-diesel and significant
free of taxes and levies currently research is still needed to establish
imposed on diesel based on fossil fuels viable germ plasms and genotypes
with the bulk of the benefit being for bio-fuel plantations, it is
passed on to the end-consumer as is recommended that the parallel
done in countries such as Germany, route based on industrial oils be
Spain, Italy and USA. A part of the pursued immediately through a
benefit could also be used to build a reduction in import duty to 5%
fund that would provide price support for high FFA vegetable oils for
to the Jatropha/Karanj farmer in the conversion to bio-diesel.
event that world price of fossil fuel- • Transesterification facilities set up
based diesel goes below a certain pre- by importers of industrial oils may
set price. The investment incentive can also be given TTRCs.
be adjusted as economic viability is • Encourage direct and local sale of
established and the country achieves a bio-diesel where feasible. This can
level of output that meets the targeted begin with the metro towns.
replacement in both stationary and • As a green fuel make bio-diesel free
motive applications. Employment of excise and levies charged on fossil
generated in cultivating bio-plantations fuel-based diesel.
may be made eligible for coverage under • Bio-diesel and/or blends of bio-
the National Rural Employment diesel should be sold with full
Guarantee Scheme. disclosure and priced differently
A parallel initiative based on bio-diesel from pure fossil fuel based diesel.
production from the residual industrial  Ethanol: Ethanol is a more complex
oil produced as a by-product while issue. At the outset it is stated that any
refining edible oils may also be investment in R&D and
encouraged. Significant quantities of commercialisation of cellulosic ethanol
such residual oils are available in world may be given a full tax credit for an
markets but current imports into India initial period of 5 years based on
attract different levels of custom duty delivery of defined outcomes. Ethanol

Policy for Renewable and Non-Conventional Energy Sources

blending helps diversify energy mix molasses – most other countries

and so improves energy security. If the produce potable liquor from grain. For
ethanol is produced domestically the the Indian liquor industry domestic
impact on energy security is even better. molasses remains the cheapest option
There is no surplus ethanol available since ethanol import for potable
in the country for blending in petrol purposes attracts a custom duty of
for motive energy. India has been 150%. Since the liquor industry
importing ethanol since 2002 and provides huge tax revenues to both
became the largest importer from Brazil central and state governments, they
in 2005 with imports of 411 million have traditionally managed to maintain
litres. This was over 9% of the world their hold on domestic molasses based
ethanol trade in 2005. The imported ethanol to meet their need. The
alcohol was primarily used by the remaining domestically available
chemical industry as it could not access ethanol is simply inadequate to meet
domestic alcohol. the needs of both the domestic chemical
industry and blending with petrol. Thus
As a comparison, a 5% blend of ethanol
one or both, the chemical and the
in petrol in India would require 610
petroleum industry have to import
million litres of ethanol – some 14-15%
ethanol, on which custom duty of only
of world trade in ethanol. Clearly, the
10% is levied, to meet their needs.
foregoing numbers show that domestic
availability of ethanol in India (which Sugarcane yields in Brazil are some
depends on cane production & yields) 23% higher on average and sugar yields
and India’s policy on blending alcohol from sugarcane is about 34% higher.
with petrol can significantly affect The cost of producing sugarcane based
domestic and world prices of ethanol. ethanol in Brazil is 40-50% that of
Needless to add that the fate of the India. Brazil produces 42% of world’s
chemical industry in India hangs ethanol. USA, the second largest
critically in balance between policies producer of ethanol, with 37% share of
that decide end-use of domestically world production, produces ethanol
produced ethanol on one hand and the from corn which is heavily subsidised.
lowering of barriers to international The per capita land availability in Brazil
competition in chemicals on the other is more than 15 times and in USA
hand. more than 10 times that in India. Only
1% of the cultivable land in Brazil is
An ethanol blending programme was
currently under sugarcane production
announced in 2003. The programme
and water availability is not a problem.
could not succeed because of non-
Thus Brazil’s ethanol industry has
availability of ethanol. However,
significant growth potential. In India
domestic prices of ethanol have doubled
water is a big constraint and sugarcane
since 2003 to reach import parity prices.
plantations have remained at 3.8 to 4.2
Ethanol in India is produced as a by-
million hectares over the last 15 years.
product of the sugar industry from
Given persistent shortages in grain, lack
molasses. About half the domestic
of water and pace of urbanisation,
production is used for potable purposes
India’s acreage under sugarcane is not
while the balance is used by industry
likely to increase.
which supplements shortfalls through
imports. The value addition in industry It is pointed out that the calorific value
is on average 2-3 times higher than the of ethanol is only 56% of petrol.
value addition as an additive to petrol. However, blending improves burning
India is the only large country where efficiency and thus ethanol is priced
potable liquor is produced from some 30-35% below gasoline prices in

Integrated Energy Policy

Brazil which is the biggest user of • Price ethanol at its economic value
ethanol for motive purposes. vis-à-vis petrol but not, in any
Given the above facts, availability of event, above its import parity price.
molasses based alcohol from the sugar • Companies in India such as Praj
industry is unlikely to grow Industries and International Crops
significantly. Even if new sugarcane Research Institute for the Semi-
acreage comes up in water rich areas of Arid Tropics (ICRISAT) have
Bihar and U.P., it should ideally replace developed commercial varieties of
current acreage in water scarce areas sweet sorghum. To encourage
such as Maharashtra. Productivity gains alternate routes to ethanol, such
are potentially possible and the same, production may be procured at the
if achieved, would by themselves not full trade parity price of petrol for
even be able to keep up with the likely 5-7 years instead of being purchased
growth in demand if the blending at its true economic value based on
programme takes off in earnest. Even calorific content duly adjusted for
grain based alcohol would become improved efficiency.
viable only if we first address our food • As a green fuel, however,
security concerns and agricultural government may wish to waive all
growth rises to at least 4% level. Thus or part of the excise and levies
the options available to India to increase charged on petrol to the extent
availability of ethanol in the short to that it contains ethanol. However,
medium term are: bulk of the benefit must be passed
on to the consumer.
(a) aggressively support alternate routes
• Petrol pumps must declare if they
to ethanol such as cellulosic ethanol
are selling blended petrol and price
and low water intensity crops such
it differently.
as sweet sorghum;
• Incentivise cellulosic ethanol with
(b) raise sugarcane yields and divert
investment credits as detailed above.
increased cane output for ethanol
production;  Fuelwood Plantation: Cooperatives
(c) promote grain-based alcohol to the should be encouraged and facilitated to
extent possible especially from grow tree plantations in villages.
spoilt grains; Cooperatives which are open to all
(d) remove barriers to import of members of the community should be
ethanol for all end-uses; and given government land on a long-term
(e) like equity oil seek ethanol acreage lease. Women should be encouraged to
in Brazil – the world’s cheapest set-up and manage such plantations so
producer of ethanol. that the time they now spend in
gathering fuel can be spent productively
Thus the following policies are in a way that empowers them. They
recommended: should also be provided finance. If
• Set import tariff on alcohol organised and managed properly, such
independent of use and at a level plantations are economically viable and
no greater than that for petroleum successful as shown by the experience
products. of National Tree Growers Cooperatives
• Require that oil companies may Foundation [Parikh et al (1997)10]. Field
blend upto 5% of ethanol with based NGOs could also be involved in
petrol but do not mandate oil this activity. To encourage large-scale
companies to do so. plantations, based on contract farming,
Parikh Jyoti K. and Reddy B. Sudhakara, Editors (1997): Sustainable Regeneration of Degraded Lands
through people’s participation”, Tata McGraw Hill Publishing Co. Ltd., New Delhi.

Policy for Renewable and Non-Conventional Energy Sources

the corporate sector could be cooking should be carried out to

incentivised to build wood based power examine their acceptability.
plants with assured access to benefits  Solar Thermal Water Heaters (SWH):
announced under the liberal captive These are economical. The main barrier
policy enunciated in the Electricity Act, to their adoption is the expense of
2003. retrofitting plumbing in households and
 Electricity from Wood Gasification: industries. Building laws should be
This process can provide electricity amended to ensure that all new
based on gasification of wood and can buildings and factories have solar water
be very useful especially in remote heaters. Existing households,
villages. The same set of policies commercial establishments and factories
indicated for micro hydel and wind should be encouraged to install solar
power plants should be followed here. water heaters through a DSM
 Community Biogas Plants: Biogas programme run by electricity utilities.
plants have been promoted for families Alternatively incentives may be given
with 5 or more cattle head to obtain 2 in the form of income tax rebates,
to 3 cubic metre of gas per day. The property tax rebates, rebates in transfer
estimated potential is 14 million plants. fees and rebates in electricity charges.
This leaves out the dung of all those The government, including the defence
who have fewer animals and also wastes and public sector, account for a
the surplus gas that may be produced significant amount of new construction
in warmer months. The real potential and installation. They can set the
of biogas is thus in community level example by conforming to revised
plants. To encourage private or building laws.
community entrepreneurs to set these  Solar Thermal Power Plants: The
up, they need to be provided land and economic viability of solar thermal
finance. Also to have the willing plants has not yet been fully established.
participation of all the cattle owners in To encourage entrepreneurs to invest
the community requires an appropriate in such plants, a higher premium of
operating strategy. Parikh and Parikh feed-in tariff may be given. The higher
(1977)11 have shown the possibility of premium can be justified given the
such a strategy. The essential policy higher risk and may be available to
required is the provision of land and only the first 5000 MW of solar thermal
finance. plants.
 Family Size Biogas Plants: If fuel  Solar Photovoltaics: Even though
efficient cooking utensils and methods, present costs of photovoltaics are very
with which 60% to 70% energy can be high, since the ultimate potential is
saved, are used than even a biogas plant very large, incentive to commercialise
with one or two cattle heads can and lower the cost may be provided
provide the bulk of required energy through a higher feed-in tariff, again
for a family’s cooking. This would for the first 5000 MW of installed
avoid the institutional complexity of capacity.
operating community level biogas
plants. Compact and monolithic biogas 14. We do not recommend any particular
plants suitable for one, two or three set of renewables as the preferred mix. The
animals are now available. Trials with attractiveness of a particular option depends
small biogas plants and energy efficient on local circumstances and each option has its

Parikh J.K. and Parikh K.S. (1977): Mobilisation and Impacts of Biogas Technologies, Energy, Vol. 2, pp. 441-

Integrated Energy Policy

own niche and unique advantage. The policy Sources and making it responsible for
instruments we have recommended permit all overall development of Renewable
options to compete on a level playing field. Energy Programmes in the country.
 Convert existing Indian Renewable
15. Some institutional arrangements to Energy Development Agency Ltd
promote renewable energy are needed. These (IREDA) into a national apex
are: refinancing institution on the lines of
 Restructure existing Commission for NABARD/National Housing Bank
Additional Sources of Energy (CASE) (NHB) for the Renewable Energy
providing it independent status and Sector by bringing equity from banks,
authority de-linking it from the insurance companies and financial
Ministry of Non-Conventional Energy institutions in the country.

Household Energy Security
Chapter VIII

Household Energy Security:

Electricity and Clean Fuels for All
One of toughest challenges before us is  We must also set a goal to provide
the provision of electricity and clean fuels to clean cooking energy such as LPG,
all; and in particular to rural populations NG, biogas or kerosene to all within
considering their poor paying capacity, the 10 years. It may be noted that the
limited availability of local resources for clean requirement of cooking energy does
cooking energy, and the size of the country not increase indefinitely with income.
and its population. Yet considering that women Thus the total amount of LPG required
and the girl child carry most of the burden of to provide cooking energy to 1.5 billion
the drudgery of gathering fuel wood, persons is about 55 Mtoe.
agricultural wastes and animal dung and also
 Meanwhile we could provide fuel wood
bear the brunt of indoor air pollution, the
urgency to meet the challenge should be high plantations within one kilometre of all
if we are to achieve universal primary education habitations. Those who do not have
for girls, promote gender equality and empower access or cannot afford even subsidised
women. The considerable effort spent on clean fuels will need to gather wood.
gathering biomass and the cow-dung and then Neighbourhood plantations within one
preparing them for use is not priced into the kilometre of each habitation can ease
cost of such energy. Additionally, these fuels this burden and reduce time taken to
create smoke and indoor air pollution, are gather and transport wood.
inconvenient to use and have an adverse impact  To develop sustainable energy supply,
on the health of people, particularly women women’s groups can form oil seed
and children. Easy availability of certain amount plantations or tree-growing co-
of clean energy required to maintain life should operatives to manage and produce bio-
be considered a basic necessity. Energy security fuel & fuel wood with the same effort
at the individual level implies ensuring the that they put into searching and
availability of such energy. This requires the gathering fuel wood today. Finance
following: through self-help groups should be
 Electricity in all households – While provided to transform women, who
under its National Common Minimum are today’s energy gatherers into
Programme the Government of India tomorrow’s micro-entrepreneurs for
is committed to electrification of all energy management.
households in 5 years, its flagship
programme, Rajiv Gandhi Grameen 2. Energy security for the poor should go
Vidyutikaran Yojana (RGGVY), beyond providing energy for subsistence. One
launched to achieve this is designed to must recognise the need to provide energy to
provide access to all households and the poor to increase their livelihood
actually electrify only BPL households opportunities, production capacities and
by 2009-10. A programme that ensures incomes so that eventually they can afford
that all households have electricity clean and convenient energy sources. For the
needs to be developed. poor in rural areas we need an integrated rural

Integrated Energy Policy

energy programme to ensure energy security. parts of the country for a village to
What needs to be done is discussed below. generate adequate electricity to meet
its needs. It is possible that a village
8.1 ELECTRICITY goes in for the DG option feeding a
local grid in the first instance.
3. The Rajiv Gandhi Grameen Subsequently, the village could get
Vidyutikaran Yojana (RGGVY) aims to connected to the grid in the normal
electrify the 1,25,000 unelectrified villages, course of grid expansion. At that stage,
connect all the estimated 2.34 crore unelectrified the DG facility can possibly provide
households below the poverty line (BPL) and grid support by feeding-in power at
augment the backbone network in all the the lagging end of the grid. A case can
currently electrified 4.62 lakh villages by 2010. be made for subsidising DG even in
While the BPL households are connected free villages proposed to be electrified
of cost, the rest of the programme receives a through grid extension.
90% capital subsidy. The 5.46 crore unelectrified
 To make RGGVY sustainable, a
households above the poverty line are expected
business plan that makes it financially
to get an electricity connection on their own
viable needs to be elaborated. A clear
without any subsidy. However, going by
pricing and subsidy policy and the
current experience the hope that the above
means of targeting the subsidy need to
poverty line households will seek connections
be announced soon. Local bodies,
on their own may not be realised. The fact is
panchayati raj institutions, NGOs or
that up to 40% of the households remain
even local entrepreneurs can take the
without electricity even in States that have
franchise to run the local network.
been fully electrified.
Women’s self-help groups can be
empowered to do so as well. An
4. Expansion of connectivity under
essential requirement for sustainability
RGGVY will require a corresponding
is the need to promote paying
expansion of supply capability. Given the
productive loads in each village.
present widespread and endemic shortage of
power in many states, special action is needed
to facilitate and encourage decentralised 6. A policy that gives 30 units of
distributed generation (DG) systems so that electricity per month to each household as a
communities can take their destiny in their matter of entitlement is recommended. As
own hands instead of waiting for utility already pointed out, such lifeline consumption
companies to supply electricity reliably. The is not likely to require more than 75-80 billion
DG plants in villages where grid extension is units in absolute terms. As already stated, not
not proposed are covered under RGGVY’s more than 60 billion kWh of this lifeline
subsidy programme. In grid connected areas consumption needs to be subsidised to varying
also DG plants can benefit from the incentives degrees even in 2031-32. Any consumption
provided by MNES. beyond the lifeline consumption should be at
full rates. Putting such a lifeline energy support
5. For RGGVY to deliver electrification regime in place would require metering and
of all households, the following needs to be targeting the subsidies to the needy. The
addressed: decentralisation of the billing and collection
foreseen under RGGVY and the distribution
 Scope of RGGVY must be redefined transformer based accountability foreseen under
to include electrification of all the revised APDRP are likely to prove helpful
households. in targeting such lifeline support. However,
 Power plants based on wood the most desirable solution remains the
gasification have been shown to be provision of direct cash subsidies to the needy
feasible as well as economical. Enough through smart cards. In deciding the level of
woody biomass is available in many subsidy, it must be recognised that even the

Household Energy Security

poorest household does spend something on biogas. With energy efficient cooking systems,
energy for lighting and hence must pay a energy need can be substantially reduced and
minimum amount for obtaining the lifeline biogas can meet much of cooking energy needs.
electricity support. As per the NSS 55th Round Community biogas plants managed as
Survey in 1999-2000, among the households in commercial enterprises need to be encouraged
rural areas that had electricity, those that with finance and provision of land.
belonged to the poorest 5% of all rural
households spent more than Rs.300 per year 10. LPG is the most convenient cooking
for electricity. Thus a charge of Rs.1.0 per fuel. If we desire that all households use it,
kWh for the first 30 units per month should then, besides setting up a distribution network,
be within the capacity and willingness of even the poor will have to be provided financial
the poorest 5% of households. assistance. However, as indicated earlier, lifeline
level of LPG consumption that needs to be
8.2 COOKING ENERGY subsidised is estimated as only about 13 Mtoe
even in 2031-32. Again, the most effective way
7. Providing clean cooking energy to all
of targeting differing levels of subsidy to support
is also a big challenge. The 2001 census found
lifeline consumption of cooking energy is by
that 625 million do not have any access to
providing it directly to the end-consumer in
modern (cooking) fuels. It is also true that
cash through smart cards.
about 70% of the energy used for cooking in
Indian households comes from non-commercial
fuels. This may be a result of underlying gender 11. At present kerosene is subsidised.
bias wherein the bulk of the cooking energy is Distribution of subsidised kerosene has not
‘managed’ using non-commercial fuels collected been without problems. The current delivery
mostly by women and the girl child, with little system of kerosene subsidy by keeping the
investment, management or technology inputs price of kerosene to the consumer low and
and little political or administrative backing. compensating the oil companies for the
They need attention and help. difference in the consumer price and the import
parity price has led to shockingly high rate of
8. The available clean cooking fuels are corruption in the petroleum distribution
LPG, biogas, kerosene and electricity. agencies. A lot of kerosene to be distributed
Electricity is, in our context, a relatively under PDS system is diverted for the
expensive form of cooking energy and should adulteration of high priced diesel even at the
be provided only in very specific circumstances depot level. Based on NSS data we estimate
where other options do not work or are more that only 56 percent of kerosene released by
expensive due to remoteness and or agro- States reaches people as PDS kerosene. Since
climatic conditions. While these fuels cause the different between price of diesel and PDS
less pollution in the kitchen, only biogas is kerosene was Rs.21 per litre in 2005-06, a
carbon neutral. Other clean fuels are producer leakage of 44 percent implies that Rs.10,400
gas and coal based Dimethyl Ether (DME) crore were made by unscrupulous distributors.
which may be cheaper than LPG. These, Removing the subsidy may improve the
however, require extensive development in availability of kerosene in rural areas for at
production and marketing. least those who can afford it. They will use
more of kerosene freeing biomass based fuels
9. If most of the animal dung available in for the poor. Once houses are electrified under
rural India is fed into biogas plants (either RGGVY, or by providing them with solar
community size with each producing >20 m3 lighting systems, the need to subsidise kerosene
of gas per day or family plants suitable for one, for lighting will also no longer be there. If
two, three or more cattle heads), supplemented kerosene is to be subsidised as a cleaner fuel,
with suitable other biomass and with improved the only way of preventing this pernicious
micro-organisms, some 30 to 40 percent of adulteration and the widely prevalent
rural cooking energy need can be met by corruption is to make the price of kerosene

Integrated Energy Policy

and diesel very close and give the subsidy to 15. Within this broad strategy the suggested
the consumer directly by way of coupons or policy actions to provide electricity and cleaner
smart cards. fuels to all are summarised below:
 Provide a monthly entitlement of 30
8.3 SUBSIDY THROUGH DEBIT units of electricity and 6 kg. of LPG or
equivalent amount of kerosene for one
or both lifeline energy needs through a
12. The best way for providing subsidy for system of Smart/Debit Cards with
electricity and cleaner fuels, kerosene or LPG, varying levels of direct cash support to
is to give an entitlement to the targeted targeted households as detailed above.
households equivalent to 30 units of power  To facilitate distributed generation
and 6 kg. of cooking gas or equivalent amount under RGGVY to enhance the speed
of kerosene to cover one or both needs. A by which we can electrify all
system of debit cards or smart cards may be households. Revise the scope of
introduced whereby the targeted households RGGVY to cover actual electrification
get a credit of different amounts of cash for the of all households. Most importantly
purchase of these entitlements. The available develop a viable revenue model for
credit on the debit/smart card can only be RGGVY.
used for purchase of these entitlements. With
 Eventually when the grid supply
modern ICT, card readers operated on battery
reaches the villages electrified using DG,
and feeding data using mobile technology can
the local generation could feed power
work in rural areas of the country too.
price into the grid, at regulated feed-in
tariffs, to support the lagging ends of
13. The problem of bogus cards has plagued
the grid.
our public distribution system. How do we
ensure that bogus debit cards would not be  For setting up of off-grid generation
issued? One way to do this is to put the names facilities in rural areas, encourage the
of all cardholders on the village board and organised sector to adopt rural
internet. Another option would be to provide community/communities in their areas
cards with physiological identification. of operation. Even tax rebates may be
considered linked to actual outcomes.
14. Even if a household decides to sell the  A large-scale socio-economic
entitlement and not use power, LPG and experiment should be financed to
kerosene, it would still be welfare improving. operate community sized biogas plants
The poor who prefer to sell their entitlement either by a community cooperative or
and still gather biomass based fuels would be by a commercial entrepreneur. This
better off as there would be much less should assess various management
competition for it. The effort and time involved models in a scientific manner and
mainly of women and girls in gathering fuel examine whether the inclusion of the
would go down. To reduce the adverse impact poor and disadvantaged can be
of indoor air pollution on their health, women guaranteed. Successful management
should be informed about possible defensive models should be replicated on a large-
measures, such as ventilating the kitchen by scale.
removing a brick or two under the roof, using  Community land should be allocated
improved smokeless chulahs, keeping the to women’s self-help groups and they
children away from the stove and minimising should be provided with finance and
the exposure to smoke, etc. technical help to develop fuel wood
plantations in convenient locations.

Energy R&D
Chapter IX

Energy R&D
Research and Development (R&D) in production. Demonstration projects, further
the energy sector is critical to augment our economic assessment and more R&D then go
resources, to meet our long-term needs, to into making the project acceptable and
promote efficiency, to attain energy attractive to customers before
independence and to enhance our energy commercialisation and diffusion can take place.
4. At each stage appropriate support needs
2. A look at the projections of to be provided for R&D. The nature of the
International Energy Agency (IEA), the Energy support and the attendant institutional
Information Administration (EIA), British arrangements will differ. India has used three
Petroleum (BP) and Shell reveals the continuing approaches; technology development missions
growth in global fossil fuel consumption till that require coordinated research and
2030. India may find it harder and harder to development of all stages of the innovation
import required energy as our requirements chain to reach a targeted goal such as in the
are growing faster than the growth in the departments of atomic energy and space
world’s total fossil fuel supplies. The solution research; technology roll out missions to
for India lies in: (a) reducing requirements by develop and roll out commercial or near
using fuel/energy more efficiently; (b) seeking commercial technology such as the missions to
substitutes to fossil fuels; (c) shifting to fuel provide rural telephony; and broad based R&D
efficient modes of transport; (d) augmenting its support to research institutions, universities
domestic energy resources; and (e) adopting and others through project funding.
leading commercial or near commercial low Technology Missions are the most appropriate
carbon and high-energy-efficiency technologies mechanism, particularly when it requires
that extract and use coal, our most abundant coordinated action in a number of different
primary energy resource, in a more sustainable areas, which may involve different government
manner. Energy R&D has a critical role to ministries, departments or levels and the private
play in all these areas. The policy initiatives sector. A technology mission whether for
that stand out for India are detailed in this development or roll out not only brings a
chapter. single point focus to dispersed initiatives in the
relevant field but also provides support to
3. Energy R&D has not got the resources research projects in universities and research
that it needs. We need to substantially augment institutions with the aim of delivering the
the resources for energy R&D and to allocate mission objectives. Technology missions must
these strategically. To take an innovative idea cover areas that are of critical importance to
to a commercial application involves many India’s long-term energy needs. While
steps. Basic research leading to a fundamental coordinated effort is desirable for all R&D in
breakthrough may open up possibilities of all links of the innovation chain, it becomes
applications. R&D is needed to develop any critical to place such a coordinating role under
new concept and to prove its feasibility. This a commercially oriented entity, with well-
needs to be followed up by a working model identified targets, when one needs to roll out
at laboratory scale. Scaling up to a pilot project already commercial or near commercial
follows if the economic potential is attractive technologies in a time-bound manner. Funding
keeping in mind cost reductions that could be for specific projects to be taken up in
achieved through better engineering and mass universities and R&D institutions as a part of

Integrated Energy Policy

such programme should be routed through the institutions, consulting firms, private
coordinating agency for time-bound outcomes. and public sector enterprise, could all
In either approach, it is emphasised that R&D compete for grants from this fund for
requires sustained support over long periods of identified and directed research.
time.  The fund should be governed by an
Independent Board with representation
5. Based on these considerations, we of Department of Science &
recommend the following: Technology (DST), Planning
 A National Energy Fund (NEF) should Commission and Energy Ministries.
be set-up to finance energy R&D. Our However, a majority should be outside
expenditure on R&D excepting for experts. It would support all stages of
atomic energy, which as of today R&D from basic research to diffusion
provides less than 3 percent of our with appropriate policies, resources and
total electrical energy supply, is institutions.
miniscule compared to what industry Each identified technology goal should
and governments spend in developed be broken down into its constituent
countries. In the developed world, basic research and applied research.
industry generally spends more than 2 Both types of research should be
percent of its turnover on R&D. In allowed to access funding from the
India, the total expenditure on R&D NEF but all activities must be
in 2004-05 was Rs.610 crores12 for coordinated to deliver defined goals/
Atomic Energy and Rs.70 crores for targets/milestones in a time-bound
Ministry of Power, Coal and Non- manner.
Conventional Energy Sources. Even at The fund should promote the
one-tenth of the rate at which industry formation of consortia between
in developed countries spends on R&D, industry, research institutions, and
i.e. 0.2% of the turnover of all energy academia in each of the identified
firms whose turnover exceeds Rs.100 energy technology areas. A virtual
crores a year, we end up with Rs.1000 network of energy research institutions,
to Rs.1200 crores per year which will like laboratories of Council of Scientific
increase over time. We should be & Industrial Research (CSIR),
spending much more than this on Department of Science & Technology
R&D. Much of R&D can be considered (DST), Department of Biotechnology
a public good. There is, thus, a strong (DBT) etc. and private sector, should
case for funding by the government be created to assist in pooling resources
either directly or through fiscal and exploiting synergies through
incentives. The latter accounts for the dispersed but well coordinated and
bulk of government support in the directed research for identified
developed countries. Fiscal incentives, technologies.
however, have not resulted in
 Each company in the field of energy
significant expenditure on R&D by
should be mandated to spend at least
Indian industry. An annual allocation
0.4% of its turnover on R&D. Any
should be made by the government for
contribution made by the company to
energy R&D. To begin with, for the
NEF could qualify for full deduction
first year Rs.1,000 crores, excluding
from the income taxes due from the
atomic energy, may be provided to
this fund. Individuals, academic research

12 Only about 15% of this amount viz., Rs.610 crores, was for R&D on nuclear power. The rest of the
expenditure is for R&D on non-electricity applications of Radiation Technology and Fundamental

Energy R&D

 The NEF should aim at making India Department of Atomic Energy and covers
a global leader in energy technologies fission, fusion, breeding of fissile material, use
most relevant to India’s energy security of Thorium as also a number of non-energy
for sustained growth. related fields. The following National
Technology Missions are recommended:
6. We have already identified some
 In-situ coal gasification: Given its vast
projects for R&D earlier. However, we
recognise that the world of technology is reserves of relatively poor quality coal
dynamic and one should be flexible in one’s which might prove uneconomical for
strategy. extraction beyond 300 meter depth
using convention technologies, India
 Resources devoted to research in needs to take the lead in developing
different areas depend on the economic this technology in order to enhance
importance of that particular area, the the life of its most important and
scope of technology and the likelihood dominant energy resource. This
of success of R&D in developing these. technology would extract energy from
The latter changes with time as new deep seated coal without the high ash
developments in science & technology that accompanies Indian coal.
take place and uncertainty reduces.  Integrated Gasification Combined
R&D priorities have to be based on a Cycle (IGCC) is a clean coal
strategic vision which is frequently technology that India has been pursuing
updated. Of critical importance is for some 3 decades. These efforts should
research and analysis to outline be brought under a mission to establish
technology road maps. The NEF efficacy with Indian coal and likely
should commission, encourage and fund commercial viability.
such studies on a regular basis in a
 Coal to liquids and/or gasified coal
number of institutions and through
individuals. to liquids: If crude settles at above
$45/barrel on a long-term basis,
 The NEF should support energy policy adapting this technology to Indian coal
modelling activities in a selected could increase India’s energy security.
institution on a long-term basis. This technology was successfully
Different modellers should be deployed in South Africa using South
periodically brought together in an African coal. They have tested Indian
energy modelling forum to address coal and confirm that the technology
specific policy issues. works.
 Carbon capture and sequestrations:
7. In view of the discussion above the
Committee felt the need for several National India’s energy mix will remain
Technology Development Missions crucial to dominated by coal at least to 2031-32
India’s long-term energy security. These and possibly beyond. In order to grow
technology missions must pull together all in a sustainable manner capturing
current efforts and resources being devoted to carbon and sequestering it would
the technologies relevant to the mission and become critical for India in the years
place their responsibility as separate but linked to come. Such technology has already
parts of a single chain of command working been deployed commercially in
towards specific and time-bound deliverables. conjunction with enhanced oil recovery
The missions must engage industry, academia from adjacent oil fields in three
and India’s R&D infrastructure of laboratories locations worldwide.
and research institutions. The missions  Bio-energy mission: This mission
identified below exclude nuclear energy as could cover three distinct areas related
research in that field is progressing well under to bio-energy. These include: (i) Bio-
the various institutions controlled by the diesel from non-edible oils such as

Integrated Energy Policy

Jatropha and Karanj; (ii) Cellulosic photovoltaic by a factor of five as soon

ethanol; and (iii) energy plantations. A as possible.
bio-fuel mission to plant Jatropha or  Advanced materials: Several
other appropriate oil plants on 4,00,000 technologies depend on developing
hectares of wasteland within three years advanced materials. A mission to
has been undertaken to assess yields support this could actually cut across
under alternative agro-climatic and soil several technologies and could also draw
conditions, diverse cultivation practices from current work done in a variety of
and different levels of inputs such as fields such as nuclear, space, transport,
water and nutrients. The mission will etc. for applications in the field of
identify germ plasm of promise and energy.
develop high yielding varieties. Even if
 Hydrogen: Development of Hydrogen
the experiment shows little scope for
as an energy carrier is being pursued in
economic exploitation of bio-diesel, the
many countries. Hydrogen can be used
expenditure could be justified just as a
to generate electricity in a fuel cell or
failed oil exploration effort, by the
it can be burnt directly in internal
large local employment generated. A
combustion engines. Hydrogen,
similar mission needs to be mounted
however, has to be produced by
for energy plantations wherein the
expanding another primary or
biomass generated could be gasified or
secondary form of energy. This can be
combusted directly in wood fired
gas, coal, oil, solar energy, biomass,
boilers for power generation. Funds
hydro or nuclear energy. It is also
available under NREGA (National
possible to produce it through
Rural Employment Guarantee Act)
microbial action. A mission covering
could be used for meeting the cost of
all aspects of hydrogen production,
planting under both these schemes.
storage, transport, deployment and use,
Production of cellulosic ethanol is
can be justified on three considerations:
getting considerable attention and India
should also mount a separate mission (i) Since many countries are working
for R&D in this emerging energy on hydrogen, the R&D on
source. applications will find international
 Storage technologies: Storage
(ii) Some of the R&D for fuel cell
technologies are important for using
based vehicles is common for
intermittent sources of power and for
electric vehicles which may become
the automotive sector. Super
attractive with advancement of
conducting storage devices and super
battery technology; and
battery technology should be focused
(iii) If economic production of
on, given that cost and higher capacity
hydrogen through electrolysis of
to weight ratios are still big challenges.
water using solar energy, and/or
 Solar: Solar technology is often seen as nuclear energy or from microbial
relevant for niche applications. Given action materialises, and storage,
that solar energy is one of our major transportation and distribution of
energy sources and the only renewable hydrogen becomes economically
energy source with sufficient potential viable, hydrogen could become a
to meet almost all our energy needs, clean and endless energy option.
we should give a high priority to
development of solar technology for  Gas hydrates: A technology mission
large-scale deployment. A technology for assessment and exploitation of gas-
mission should be mounted to break hydrates is justified given India’s
barriers to wider use of solar thermal abundant gas hydrate reserves in deep
and for bringing down the cost of solar waters.

Energy R&D

8. The Committee has identified the exploration and extraction of coal for
following areas wherein technologies are either adaptation in Indian conditions. Coal
fully commercialised elsewhere or are near India and Neyveli Lignite to be given
commercialisation. Even technologies that have the lead in this area.
been commercialised elsewhere a certain  Increased/enhanced oil and gas recovery
amount of adaptation may be called for. In all and recovery of hydrocarbons from
these areas, technology roll out missions are abandoned and isolated fields. ONGC
proposed. An industry, or a group of industries should be given a time-bound
or a commercially oriented agency should be programme to acquire and deploy such
asked to take the role of lead coordinator and technologies.
seek early acquisition, adaptation and
 Fuel-efficient vehicles. The automotive
commercialisation. R&D funding for in-house
industry should be asked to achieve
research and directed outsourced research
higher fuel efficiency standards in steps
should be provided based on competing offers.
so as to reach efficiencies that are at
 A number of energy efficiency least twice current levels. Companies
technologies including DSM reaching defined milestones first to be
technologies. Technology Information, given large cash awards along with
Forecasting & Assessment Council fiscal incentives based on outcomes.
(TIFAC) can be asked to identify  Hybrid vehicles and battery operated
specific technologies ready for vehicles. Automotive industry to lead
adaptation and/or commercialisation in the efforts in commercialising these
India. technologies. Large cash awards and
 Recovery of coal bed methane and mine fiscal incentives given based on
mouth methane. Blocks have been outcomes.
allocated already. ONGC and others  Off-shore wind potential to be tapped.
holding blocks should be asked to Wind mill manufacturers to take lead
indicate firm dates for tapping this in delivering a time-bound programme.
energy and identifying any specific GOI to provide fiscal incentives.
hurdles or technology needs.
 Alternate routes to alcohol such as
 Fluidised bed boilers and advanced sweet sorghum should be promoted.
circulating bed fluidised boilers should Industries such as Praj and industrial
be promoted for use with low quality alcohol users to compete for R&D
Indian coals and/or washery rejects. funding and fiscal/cash rewards against
BHEL, L&T and others should be defined outcomes.
asked to take the lead in developing
 Promoting community bio-gas plants.
this application and its wider use.
The real potential of biogas is in
 Washing of Indian coal, requires that a community level plants. To have the
well-established technology be adapted willing participation of all the cattle
for Indian coals of different quality so owners in the community requires an
that yields and viability can be appropriate operating strategy.
improved. BHEL and NTPC should Individual and community
lead this effort with the support of the entrepreneurs should be encouraged to
research institutions of the coal experiment with alternate strategies by
industry. providing land and finance. Industries
 Reduction of SOx/NOx and particulate should also be roped in to execute the
emissions to match global standards. programme through adoption of
NTPC, private sector and SEBs could villages. Tax rebates to be provided on
compete for taking the lead on this. a graduated scale based on actual
 Current practices/technologies for outcomes in the field.

Integrated Energy Policy

9. The above list is neither a in academic institutions will itself attract

comprehensive list nor a mandatory one. It is students and, over time, relevant expertise will
an indicative list of technology areas relevant develop. A number of academic institutions
to India’s needs. The primary idea is to conduct should be developed as centres of excellence in
and fund research that is directed and outcome energy research. Generous funding for
oriented. All funding made available and fiscal fellowships for energy R&D may be provided
incentives provided should be linked to to students pursuing post-graduate degrees.
achievement of defined outcomes. Finally, a
variety of institutions and individuals can be 12. Energy R&D, particularly that devoted
tapped but in a coordinated fashion to deliver to reduce green house gas emissions, has
defined outcomes. characteristics of global public good. India
should link up with other countries and
10. In addition to the two types of cooperate with international R&D initiatives.
technology missions, the NEF should also India’s manpower strength in R&D can then
provide R&D support for application, be leveraged to get better results sooner and at
innovation of new ideas, fundamental research lower cost. Joint research with shared IPRs
etc., to researchers from different institution, could boost India’s R&D efforts significantly.
universities, organisations and even individuals. Also, with our growing and diversified energy
market, R&D efforts can find quicker returns
11. Such a R&D programme will require on successful commercialisation in India. Such
large number of trained researchers. However, a strategy would give India its appropriate
a vigorous programme of research and teaching place in global energy R&D.

Power Sector Policy
Chapter X

Power Sector Policy

When India became independent in 3. Although the Central Public Sector
1947, the country had a power generating units delivered their objectives to a satisfactory
capacity of 1362 MW. Generation and level, it soon became evident that the public
distribution of electricity was carried out sector dominance of this crucial sector was
primarily by private utility companies. A few increasingly being seen as a weakness. Power
of these are still in existence. Power was sector reforms were initiated in 1991 to
available only in a few urban centers; rural encourage competition and seek private
areas and villages did not have electricity participation in each sub element of the sector,
supply. namely generation, transmission and
distribution. Fast Track private sector projects
2. The Electricity (Supply) Act, 1948, was with Government guarantees followed by the
enacted to facilitate faster power sector Mega Power Policy were announced to attract
development and State Electricity Boards (SEBs) large-scale private investment into the sector.
were set up in all the states to achieve the These efforts did not bear fruit but the
desired objective. All new generation, Government persisted and proceeded to usher
transmission and distribution came under the in an independent and transparent regulatory
purview of SEBs. The creation of SEBs led to regime. After the enactment of Regulatory
faster development of power sector in the Commissions Act, 1998, Central Electricity
country. However, financial constraints of the Regulatory Commission (CERC) was set up at
State Governments precluded the SEBs from the central level and twenty four states have
adding the desired capacity to meet the growing either constituted or notified the constitution
demand. During the Fifth Plan period (1974- of State Electricity Regulatory Commissions
79) it was felt that Central Government should (SERCs) since then. The SEBs of A.P., Orissa,
supplement state governments’ efforts to expand Haryana, Karnataka, U.P., M.P., Uttaranchal,
the power system in order to ensure that the Delhi, Gujarat, Maharashtra, Rajasthan and
country achieves the desired economic growth. Assam have been unbundled and corporatised.
The National Thermal Power Corporation
(NTPC) and National Hydroelectric Power 4. Despite these reform initiatives, most
Corporation Ltd. (NHPC) were set up in 1975 of the SEBs continued to make financial losses
and North Eastern Electric Power Corporation because of an unsustainable level of aggregate
Ltd. (NEEPCO) in 1976 to achieve this technical and commercial losses. Unpaid dues
objective. Under the Department of Atomic of the Central Public Sector Units mounted
Energy (DAE) the country’s first Nuclear and, by 2001, had crossed the Rs. 40,000 crore
Power Plant was set up in 1969. Later in 1987 mark. These dues were seen as a major
Nuclear Power Corporation of India Ltd impediments to the reform process and were
(NPCIL) was set up by the DAE to develop securitised under a tripartite agreement covering
nuclear power plants in the country. These Central Sector Power Utilities, Coal India and
Central Power Sector PSUs were responsible Railways. The tripartite agreement guaranteed
for their own transmission schemes till the payments to these Central PSUs and used
National Power Transmission Corporation incentives to encourage commercial discipline
(POWERGRID) was created in 1989 with the and initiation of reform process in the States.
responsibility of constructing, operating and
maintaining the inter-state and inter-regional 5. It has become increasingly evident that
transmission system of the country. distribution reform holds the key to long-term

Integrated Energy Policy

sustainability of the sector. Distribution has consumers (including sales to public water
been privatised in Orissa and Delhi but results works and railway traction). However, this 48
have been mixed, at best. The presence of the percent of billed energy yields over 70 percent
private sector, even today, remains limited to of the actual revenue collected by the state
about 12% of generation and covers distribution utilities. The cross subsidies cannot be raised
in only a few cities. To encourage distribution any further as they have reached a level where
reforms, the Accelerated Power Development industries find it cheaper to set-up their own
and Reforms Programme (APDRP) was generating plants.
launched. APDRP supports distribution
reforms in the states through investment RESTRUCTURING OF APDRP
support and incentives for lowering AT&C
losses. APDRP set out to bring down AT&C 8. The problems with APDRP are: lack
losses to 15% by 2007 from an estimated level of baseline data to assign accountability and
of 45% in 2002 and restore the financial health assess outcomes, poor preparation of projects
of SEBs. However, the performance of APDRP as revealed by some independent assessment
has fallen well short of the promise. Investment and a lack of incentives for the staff to reduce
in the distribution sector remains low and the AT&C losses. APDRP needs to be restructured
overall AT&C loss level continues to remain as follows:
high.  Introduce automatic meter reading
(AMR) of all distribution transformers
6. As a result, power shortages remain a to track how much loss occurred in
persistent problem. The inability to expand each area served by a transformer and
generating capacity, strengthen transmission establish accountability. Back this with
networks and improve distribution systems a Geographical Information System
reflect the financial sickness of SEBs. They do (GIS) that maps the distribution system
not have the resources to invest themselves to facilitate power audits, pinpoint the
nor have the credibility to attract private offenders and improve customer service.
investors. The large AT&C losses are partly an Introduce an incentive scheme for staff
outcome of neglect of investment in whereby they share the additional
transmission & distribution (T&D) over the revenue collected in their distribution
years. Substantial investments are needed in circle.
T&D. Simultaneously, changes have to be made
 Data generated with AMR and GIS
to better manage the distribution of electricity.
mapping can help split up AT&C losses
The problems of pilferage, misclassification of
into technical, billing, collection & theft
consumers, under/over billing and non-
and help in designing specific corrective
collection of bills would also need to be
actions and assigning responsibility and
addressed. At the national level AT&C losses
accountability. This data should be
still exceeded 40 percent in the year 2004-05
disseminated to the public to create
(CEA 2005). The ratio of energy billed to
support for corrective action.
energy available was a low 68 percent in 2004-
05.  Bifurcate agricultural pumping load
from the non-pumping load in all rural
7. Among those that are billed for feeders. Use available technological
electricity are large number of farmers and options to limit and measure the
domestic consumers who are subsidised. Cross amount of agricultural pumping energy
subsidies from industrial and commercial provided
consumers that were meant to fund the  For all loads above say 50 kWh,
subsidies given to farmers and domestic introduce intelligent meters that permit
consumers are, today, also funding the losses real time and remote recording of data
and the inefficiencies of the distribution and allow remote control over the
companies. Less than 48 percent of the billed power supplied by each meter. This
energy is sold to industrial and commercial would help effective management of

Power Sector Policy

connected load and the reported 11. As the provisions of the Electricity
pilferage by large consumers. Act, 2003 take root, the pace of reforms is
 Introduce time-of-day pricing with shift likely to accelerate and private sector
to electronic meters. participation should become easier. The Act
provides the basic framework for encouraging
 All central assistance to state
competition in the sector and creates open
governments for the power sector must
access to encourage private sector investments
be linked exclusively to loss reduction
in each element of the electricity value chain.
and improved viability.
Moreover, it permits setting up of captive and
 The improvements listed above and group captive power plants without the
the base line data generated as a result clearance of the distribution utility and provides
would bring greater transparency in for wheeling power from the captive plants to
the process of privatisation (if pursued) captive consumers without any cross-subsidy
and provide a better estimate of the surcharge. However, significant private sector
transition funding needs under participation and competition still elude the
outcome driven privatisation models sector. While movement of the reform process
that seek to restore the viability of is in the right direction, actual achievements
distribution. have been minimal.

12. Worldwide, the efforts in introducing

competition and in deregulating the power
9. Ideally, agricultural consumers should sector have yielded mixed signals. Emphasis
be metered and the subsidy should be given on competition has, in several countries,
to the distribution utility by the State highlighted the limitations of open market
Government based on actual energy delivered. orientation, unbundling and open access. The
However, given the political reality where resulting stress on capacity creation especially
many Chief Minister’s promise free power to in transmission, loss of price stability, uneven
farmers, separation of feeders is suggested as a sharing of benefits between large and small
second best solution. It will enable the consumers, high institutional and transaction
distribution utility to ration agricultural costs etc. have together created support for
consumers and to meet their requirement at integrated utilities with monopolies in licensed
off peak hours thus lowering the economic geographical areas. The question being asked
burden of free power to farmers and providing today by some is if well-functioning regulation
more accurate estimates of real agricultural that creates capacity through competition is
consumption. not a better answer than totally free
competition that permits full access to
10. Privatising distribution is seen by some consumers. It has been seen worldwide that
as an alternative solution to reducing AT&C spot markets, power pools, retail choices, etc.
losses. Based on experience worldwide, require an elaborate and often expensive
institutional and regulatory framework without
privatising utilities is definitely part of the
which the benefits are difficult to achieve.
solution. India’s experience with privatising
Similarly worldwide experience shows that
the Delhi and Orissa distribution has, however,
privatisation in the electricity sector can
raised as many questions as it has answered.
certainly help but may not be necessary or
Where privatisation is politically feasible, it
sufficient to effect transformation.
should be done in a transparent manner based
on authentic base-line data and through a
13. It might be argued that in the electricity
genuine round of competitive bidding. There
sector competition should be encouraged, where
should be no shifting of the publicly announced appropriate, rather than taking it as a default
terms of privatisation post bidding. The principle. The lumpy investments needed to
restructured APDRP can, in the very least, create capacity, the relatively large incremental
help create an authentic base line. step when new capacity is added, the gestation

Integrated Energy Policy

lag in creating additional capacity and Coal India since then. The states have been
environmental and logistical issues create maintaining payment discipline vis-à-vis Central
hurdles to perfect competition in the power Power Sector PSUs, but the long-term viability
sector with available technology choices. This of the arrangement is questionable, particularly
could change in the future. Specifically with as the share of Central Power Sector PSUs in
respect to India, management reforms power generation keeps on increasing. There
(particularly in the distribution sub-sector) are is, thus, an inescapable need to reform the
as important as a liberal captive and open power sector.
access regime driven by a desire to create
competition in the power sector. While it REDUCTION IN COST OF POWER
might be utopian to assume that perfect
regulation could substitute competition, it is 16. There is at present no level playing
unambiguously clear that regulation will indeed field between Central Power Sector PSUs and
expand once competition sets in. It is equally others. The tariff of the Central Power Sector
unrealistic to assume that perfect competition PSUs is determined on the basis of costs and
can be introduced in the power sector in a norms with a guaranteed 14/16% post tax
short time. The key for India might be effective return on equity. This tariff determination
stakeholder involvement for successful regime gives little incentive to be efficient. The
regulation. This may go as far as appointing an private sector generators do not get the comfort
office of “Consumer Advocate” at the state of the payment security mechanism available
level. Again, while privatisation is one possible to Central Power Sector PSUs under the TPA
option for distribution, it cannot be a pre- and the State power utilities do not get the
requisite or a necessary consequence of APDRP assured post tax returns.
restructuring. The door for reform under public  In cases where tariff continues to be
ownership must be left open. determined on the basis of costs and
norms, regulators may either adopt a
14. The above should not be read as a vote return on equity approach or return
against entry of private sector into the power on capital approach, whichever is
sector or negating the benefits of competition. considered better in the interest of
As stated above, competition is very much consumers. In deciding the level of
possible in each element of the electricity value return provided, the regulator should
chain under a well-functioning regulatory inter-alia take into account the return
regime. In the context of India, the strength of available on long-term government
the dominant public sector can be effectively bonds and reasonable risk premiums
leveraged to introduce competition that extracts associated with equity investments.
efficiency gains in generation, transmission and
 Distribution should be bid out on the
basis of a distribution margin or paid
for by a regulated distribution charge
15. Capacity expansion is currently done
determined on a cost plus basis
mainly by the Central PSUs who have been
including a profit mark up similar to
insulated from payment problems by the
that described above.
Tripartite Agreement (TPA) involving SEBs,
State Government and Reserve Bank of India.  All generation and transmission projects
The TPA protects payments to Central Power (with the exception of one time capacity
Sector PSUs, Railways and Coal India through expansion of up to 50% of installed
recourse to the account of the state governments capacity of a generating plant) should
with the Reserve Bank of India. Although the be competitively built on the basis of
TPA came into existence in 2001 in the context tariff-based bidding. Public Sector
of past dues of state governments to Central Undertakings shall also be encouraged
Power Sector PSUs, Railway and Coal India; it to participate in such bids even though
has been applied also to all new capacity created the tariff policy allows them a 5 year
by Central Power Sector PSUs, Railway and window wherein projects undertaken

Power Sector Policy

by the public sector need not be bid captive regime foreseen under the
competitively. Electricity Act and provide consumer
 The liberal captive and group captive choice through open access. This
regime foreseen under Electricity Act, requires the development of normative
2003, should be realised on the ground. wheeling and distribution costs at
India’s liberal captive regime will not different voltages by respective
only derive economic benefits from Regulators, the introduction of time-
availability of distributed generation of-day pricing at the bulk and retail
but set competitive wheeling charges levels, and the identification of cross
to supply power to group captive subsidies embedded in the cost of
consumers. This will pave the way for supply in each distribution circle. Time-
open access to distribution networks. of-day tariff may make gas-fired peaking
stations economical.
 The Ministry of Power (MOP) should
facilitate large-scale capacity addition  Electricity prices are currently set by
(20,000 MW or more) to meet identified State Electricity Regulatory
demands of beneficiary states through Commissions on cost plus basis.
international competitive bidding. Bulk Regulators should set tariffs for a
orders of this size, to be delivered over number of years and differentiate them
a given time frame, can, if executed by time of day.
properly, be used to: (a) lower capital  Respective Regulators should adapt best
costs; (b) introduce plants that deliver international practices that reward
internationally comparable conversion utilities for seeking: (i) distributed
efficiencies; (c) promote coastal generation with waste heat recovery
locations with dedicated facilities for where feasible; (ii) demand side
handling domestic coal transported by management; and (iii) energy
sea or imported coal; (d) realise conservation and energy efficiency
internationally comparable emission technology adoption through Negawatt
standards; and (e) under certain incentives.
circumstances, create new domestic  Regulators must establish feed-in-tariffs
manufacturing and engineering capacity for power from renewable energy
to build power plants. Since the sources. The feed-in-tariffs should also
projected capacity additions over the provide time-of-day benefits to
next 25 years are more than 6,00,000 renewable energy supplies.
MW, there is no danger of pre-empting
future competition or limiting
17. Other policy initiatives needed are:
technology options by such bulk
Transmission and Distribution
 Any subsidy given to poor households
or farmers should be funded by the  Separate content from carriage in both
State Government through its budget. transmission and distribution.
Regulated caps for: (i) wheeling charges
REGULATOR at different transmission voltages; and
(ii) distribution margins for consumers
 Existing projects and future investments at different voltage levels must be
that are not competitively bid must introduced. Competition should be
comply with CERC’s tariff guidelines. introduced in building transmission
States that do not comply should be capacity on the basis of wheeling tariffs
made ineligible for Central Sector and in distribution on the basis of
support for their power sector. distribution margins.
 Operationalise the flexible and enabling  Inter-state transmission networks

Integrated Energy Policy

should be managed by a regulated may be used along with appropriate

monopoly. Transmission lines critical grid management.
for inter-state flows of power and for  To set up off-grid or distributed
system stability should also be managed generation facilities in rural areas,
by the central body, even if it is entirely encourage the organised sector to adopt
within one state. rural communities in their areas of
 Independent and/or fully transparent operation. They can build local
load dispatch is required at regional capacities to operate such plants and
and state levels to ensure a level playing eventually transfer the plants to local
field among competing common groups.
carriers. An independent planning body  Ensure sustainable revenue models for
for transmission networks is necessary rural electrification programmes.
to ensure proper development of such Without such revenue models
networks. programmes such as RGGVY are
unlikely to be sustainable.
Rural Electrification and Distributed
Generation Adding Domestic Manufacturing and
 Require the State Governments to Engineering Capacity
notify rural areas as required by the  The available manufacturing and
Electricity Act, 2003. Such notification engineering capacity in the country is
could assist the emergence of grossly inadequate to support the
independent rural suppliers of ambitious capacity addition programme
electricity thereby enhancing access for in thermal, hydro, nuclear, renewable
both household and productive uses. and T&D sectors. There is an urgent
Many remote villages may be provided need to create these capacities,
electricity and energy security through preferably in the private sector.
locally available renewable resources.
 To facilitate distributed generation and 18. In order to avoid power shortages and
encourage generation by renewables, take timely action annual electricity
make grid connections for feeding in requirements should be projected and year-
surplus power to the grid, at the grid’s wise targets for generation capacity be set for
avoided cost, mandatory. In order that seven years. Each project, public or private,
this does not jeopardise grid stability, should be monitored along with a number of
variable frequency transformers for milestones. This will help entrepreneurs to
asynchronous network connections take timely decisions to invest.

Coal Sector Policy
Chapter XI

Coal Sector Policy

The origin of coal mining in India in 1957 to help NCDC acquire coal bearing
dates back to 1774. Demand for coal started land in various states.
rising mainly for use by the railways after 1885
and coal production reached a level of over six 4. Coal mining by the private sector led
million tonne per annum by the beginning of to a situation wherein there were a number of
twentieth century. Coal mining was small pits, which functioned with little regard
predominantly done by the private sector and to conservation, safety of workers and use of
pricing was market driven. A surge in demand scientific methods of development. This led to
was witnessed during the First World War, hazardous working conditions and loss of coal.
which multiplied many-fold during the Second Recognising these, the coal industry was
World War. Government control over prices, nationalised in two phases - coking coal in
production and distribution was imposed upon May 1972, and non-coking coal in May 1973.
the coal industry during this period by the A holding company, Coal India Limited (CIL),
Colliery Control Order, 1944 modified under was formed in November 1975, with several
the Essential Commodities Act, 1946 and it coal producing subsidiary companies based on
remained in force even after independence. By geographical location of coalfields and one
1950, coal output had risen to about 32 Mt and company dedicated to mine planning and
Railways continued to be the single largest design. Mines belonging to NCDC were merged
consumer (31%) followed by Iron & Steel and with different subsidiary companies. Tata Iron
brass foundries (14%), brick kilns (9%), power & Steel Company in private sector and Indian
utilities (7%), cotton mills (7%), others (32%) Iron & Steel Company and the Damodar Valley
including colliery consumption (11%). Corporation under the public sector continued
to operate their captive mines. Singareni
2. The Coal Board was set up in 1951 for Collieries Company Ltd. is the oldest public
the conservation of coal resources and safety of sector coal company under the administrative
mines under Coal Mines (Conservation & control of Government of Andhra Pradesh
Safety) Act, 1952. The Mines & Minerals with an equity share of 51%. The balance 49%
(Regulation & Development) Act, 1948, was belongs to the Government of India.
consolidated in 1957 to deal with procedures
for granting and operating mineral concessions 5. Lignite development was pursued
and prescribing royalties to State Governments. through a public sector enterprise, the Neyveli
Also, the Mines Act, 1923, enforcing safety in Lignite Corporation Ltd. (NLC) established in
mines and welfare of miners was replaced by a 1956. Besides NLC, lignite is also being mined
more comprehensive act in 1952. by the State PSUs of Gujarat and Rajasthan.

3. After independence, the Government 6. Geological Survey of India (GSI) is

passed an Industrial Policy Resolution in April, vested with the responsibility of regional
1956 thereby including coal in the list of exploration for coal. Mineral Exploration
industries earmarked for development in the Corporation Ltd. (MECL), Central Mine
public sector and the National Coal Planning & Design Institution Ltd. (CMPDIL)
Development Corporation (NCDC) was & Geological Survey of India (GSI) have been
created in 1956 to carry on coal mining in the identified for undertaking promotional
public sector. The Coal Bearing Areas explorations to supplement regional
(Acquisition & Development) Act was enacted explorations with a view to expedite

Integrated Energy Policy

exploratory efforts for coal and lignite. Detailed various core sectors, the government proposed
exploration is being carried out primarily by to allow private participation in commercial
MECL & CMPDIL on behalf of the coal coal mining. A Bill was introduced in the
companies. Some of the mining and geological Parliament in April, 2000, to amend the
corporations of the State Governments are provisions of Coal Mines (Nationalisation) Act,
also taking up coal exploration on their own. 1973, for facilitating private participation in
commercial coal mining. The Bill proposes to
7. Coal consumption in the country has open up the coal sector to private investment,
been rising steadily and in 2005-06 India but it does not have the requisite political
consumed some 432 Mt of coal. This included support for passage. While waiting for the
import of 17 Mt of metallurgical coal and 20 April 2000 Bill to be enacted by the Parliament,
Mt of thermal coal. Given limited reserves of the Government is trying to remove the barriers
high grade metallurgical coal and the high to captive mining under the current law.
cost of underground mining, India currently
imports about 66% of its requirement of 10. Keeping in view the railway
metallurgical coal. Thermal coal imports are infrastructure, distribution of coal among
not significant. However, the quality of various user industries and movement plans
domestic thermal coal has deteriorated over are controlled through a mechanism of
the years due to the increased reliance on the linkages. A long-term and short-term linkage
more cost-effective opencast mining. The committee allocates coal to various core
improvement in overall labour productivity industries such as power, steel, cement etc.
has been marginal primarily because the The linkage committee, an inter-ministerial
mechanisation of underground mines has not group, evaluates the requirement of coal by
been successful to a large extent. The Industry consumers at the planning stage and links it
also continues to face problems in regard to to what seems like a rational source from a
land acquisition and rehabilitation. long-term perspective after examining factors
like quantity and quality required, time frame,
8. Following the economic reforms location of the consuming plants, transport
instituted in 1991, the private sector has been logistics and the development plan for the
allowed to mine coal for captive consumption coal mine. Unfortunately, the linkages remain
under the Captive Mining Policy of 1993. The frozen, and as mines and users develop, they
captive mining policy allowed allocation of no longer remain rational.
blocks to designated end-users for mining coal
for their own use. The current list of authorised 11. Coal prices were decontrolled totally
end-uses includes power, steel and cement from the 1st of January, 2000 after scrapping
producers. FDI was permitted in coal mining, Colliery Control Order 1946; and coal
and joint ventures were also permitted. A large producing companies (CIL and SCCL) fixed
number of coal blocks stand allocated to private prices on their own and revised the same
entrepreneurs for developing captive mines but periodically based on an escalation formula
only few of these mines have started under a cost plus approach. As a result, coal
production. The captive mining policy has prices have been revised several times in the
significant hurdles and has not been a success, recent past. Decontrolling price in a
so far, either in raising domestic production or monopolistic situation is adversely affecting
in increasing the number of domestic producers. the interest of consumers. In the absence of a
State Government Corporations and CPSUs coal market with competing suppliers, there is
are permitted under the Coal Mines a need to develop a transparent mechanism for
(Nationalisation) Act to take up coal mining at pricing domestic coal.
par with CIL. Some state governments like
Jharkhand and J&K operate small mines. 12. Currently there is no competition in
the coal sector and the public sector monopoly
9. In line with the economic reforms continues. No regulatory framework is available
aimed at raising the level of competition in and in such a situation grievance redressal for

Coal Sector Policy

consumers, particularly in regard to price/ 15. Primary energy from the coal resources
quality disputes, is difficult. To raise the can be augmented if mining plans exploit coal
commercial performance of the industry to efficiently and if coal bed methane as well as
meet international standards and to sustain the mine-mouth methane is captured and used.
projected growth of energy sector, it is The needed technology is globally available
important to address these issues. but has to be adapted to Indian conditions.
Similarly in-situ coal gasification can use coal
13. Coal accounts for over 50% of India’s that is difficult to recover with conventional
commercial energy consumption and some 78% mining. Technology for in-situ gasification
of domestic coal production is dedicated to needs to be developed.
power generation. Since prices were de-
controlled, the sector has become profitable 16. Most of India’s coal resources - proved,
primarily as a result of price increases and the indicated and inferred - are said to be within
rising share of the more remunerative open 300 meter depth. There is a concern that this
cast production. The sector has also recorded is an outcome of insufficient exploration of
improvements in productivity but despite these deposits below 300 meters and a sense that
improvements, the coal sector scores poorly exploiting coal below that depth with
against international comparators because of conventional mining is, in any event,
excessive manpower, poor project formulation, uneconomical for low quality coal. Detailed
inefficient procurement, poor accounting and coal exploration is almost exclusively done by
financial management systems, low productivity CMPDIL, which is a subsidiary of CIL.
etc. Despite these inefficiencies domestic coal Concern has been raised about CMPDIL’s
is internationally competitive at mine-mouth. independence under this structure. Moreover,
In fact, coal at the mine-mouth is the only CMPDIL’s drilling capacity is limited and this
primary or secondary form of energy in which has resulted in a limited detailed exploration
India is internationally competitive. Another programme for proving reserves. CMPDIL
positive for the coal sector is its good safety should be made an autonomous institute. Its
record when compared with international capacity should be strengthened and
experience. exploration for coal should be opened up to
others just as exploration for petroleum has
14. A concern often voiced for India’s coal been opened up.
sector is the inefficient exploitation of the in-
place coal reserves and the lack of control on 17. Enlarging the coal resource base is
mining practices that could potentially be important to meet coal requirements. Under
sterilising significant parts of existing reserves. the various scenarios coal requirement is
Driven by short-run maximisation of economic projected from a low of 1580 Mt to high of
benefits if coal is mined in an open cast mine 2555 Mt for 2031-32 and about 1128 to 1870
only to the depth of 150 metres, and the Mt for 2026-27. Coal India Ltd. has targeted a
overburden is used to fill up the void, coal maximum production of 839 Mt by 2025 in its
lying in the lower horizon and reserves below ‘Vision 2025’ document. Clearly, if India is to
150 metres depth in the same horizon, then get avoid large-scale imports of coal, not only does
practically sterilised as it would be even more India need to increase the pace of growth in
uneconomic for subsequent exploitation using coal production but also raise coal production
conventional mining technologies. At current targets significantly. What this requires is to:
levels of production growth, the known (a) increase the number of players in coal
extractable reserves will be exhausted in less mining; (b) since Coal India currently has
than 45 years. A large part of India’s coal blocks with 70% of the proven reserves, de-
reserves may not be extractable with current block those blocks that Coal India does not
mining technologies. India must, thus, lead the propose to bring into production by 2016-17
way for extracting this energy through in-situ and assign them to captive users with a
coal gasification in the interest of her energy condition that these blocks be brought into
security. production by 2011-12; and (c) raise the

Integrated Energy Policy

exploration effort significantly to prove  Develop the needed infrastructure for

additional reserves. coal imports.

18. Building domestic capacity for mining 21. Unlike in the rest of the world, coal in
equipment and significantly raising domestic India is sold without any “preparation” or
engineering capacity is necessary to achieve the “dressing”. Simple deshaling, improved mining
projected level of production. procedures and sizing of coal could bring down
the average ash content of Indian coal to around
19. India is the third largest coal producer 35% from the current level of over 40%. Full
in the world but remains a marginal player in washing could reduce the ash content further,
international coal markets. Even domestically, thereby saving transport costs and resulting in
there is an absence of a coal market with bulk more efficient power plant design and
of the sale taking place under a system of coal operation. Only a small fraction of thermal
linkages based on available rail capacity. Pit- coal is actually “washed” in India. One of the
head prices of coal are set by Coal India, the hurdles to washing is the prevailing unique
monopoly producer. Railways, another practice of pricing coal on grades based on
Government monopoly, cross subsidises wide bands of Useful Heat Value (UHV) instead
passenger traffic with coal freight thereby of the fully variable system based on the more
making delivered price of coal 2-4 times the precise Gross Calorific Value (GCV) as done
pit-head price of coal in states such as Punjab, in the rest of the world.
Haryana, Rajasthan, Gujarat, Maharashtra, Goa,
Karnataka, Kerala, Tamil Nadu, Western U.P. 22. In the light of the foregoing, the sector
& Delhi. is in serious need for market based reforms.
The following policy initiatives are suggested:
20. The constrained supply of thermal coal
and the projected requirement of thermal coal Policies not requiring legislative amendments:
suggest the need to import coal. By the end of
the 11th Plan India’s import needs could rise Increasing Number of Coal Producers
to 50-60 million tonnes of high quality thermal
coal. Import of coal will also put a competitive  Pending the passage of the Coal Mines
pressure on the domestic coal industry to be (Nationalisation) Amendment Bill,
efficient. No significant import of thermal coal 2000, the number of players in coal
is evident in the near future despite the fact mining should be increased through
that long-term import contracts would make avenues available under the existing
imported coal competitive against domestic legislation that permits mining by state
coal at coastal locations in the above states. governments, public sector companies
The reason for this is the absence of coastal and for captive use by recognised end-
power plants, inadequate port capacity and the users (power, steel and cement).
need to trans-ship imported coal on domestic Captive block holders must be
rail/road linkages to consumption points. While permitted to sell incidental coal
power generated at pithead and delivered surpluses during the development and
through HVDC transmission lines can be operation of a block to CIL. Group-
cheaper than power generated from imported captive mines should be allowed for
coal at coastal location, there is a limit to the small end-users, and a target must be
amount of generation that can be done at set for the Ministry of Coal to achieve
pithead due to environmental considerations. at least 100 Mt of captive production
Coastal power plants based on imported coal by 2012.
thus have an economic space (see BOX 11.1).
 Coal blocks held by Coal India Limited
Thus India must:
(CIL) that cannot be brought into
 Encourage coastal power plants based production by 2016-17, either directly
on imported coal. or through joint ventures, should be

Coal Sector Policy

BOX 11.1
Delivered Cost of Domestic and Imported Thermal Coal
Most of the domestic coal supplies to power sector fall under Grade E and F having average
delivered calorific value of 3500 kcal/kg against at least 6000 kcal/kg of imported coal.
Domestic and imported coal in terms of cost per million kilo calories of delivered heat value
at the consumer end were compared. It may be seen that the delivered cost of the power grade
Indian coal exceeds the cost of imported coal at port when transported to consumers beyond
1000 km. Further, imported coal is the cheaper option even with inland transportation of
some 500 km if domestic coal has to travel beyond 1400 km to reach the consumer.

Domestic coal from mine to consumer and imported coal from port to consumer are being
transported by rail. Landed CIF price of imported coal having GCV of 6000 kcal/kg is taken
as US$60. Exchange rate assumed is Rs 44.50 per US$. Domestic coal price includes weighted
average notified price of coal for the respective grades, royalty, stowing excise duty,
transportation charges from mine to railway siding, central sales tax and rail freight. Landed
price of imported coal at port includes all applicable taxes and duties. However cost of
handling imported coal at the Indian port and transporting it to the railway siding for inland
transportation is not included. If this is done, the economical distance to which imported coal
can be transported inland will reduce further.

made available to other eligible  The gestation periods for the end-use
candidates for development with the project may be different than that of
condition that they be brought into the coal mine. To ensure that both the
production by 2011-12. Allottees of mine and the end-use project are
captive blocks in general should be developed in a cost-effective manner
required to work the block within a the innovative use of short-term
specified time limit failing which linkages can be made. This must be
allotment should be cancelled and/or a linked with strictly enforced guarantees
pre-agreed penalty imposed. that back performance related to both

Integrated Energy Policy

the end-use project and the captive Regulated utilities should be

mine. allowed upto 100% of their certified
 Transfer pricing of coal from captive requirements through FSTAs.
mines needs to be established both for Other bulk consumers may be
the sake of assessing coal royalties as allowed partial FSTAs based on
well as tariffs in a regulated sector such coal availability. Any shortfalls in
as power wherein coal cost is a pass requirement not covered by FSTAs
through. Even if power tariff is should be met through e-auction
determined on the basis of competitive supplies or imports.
bidding, transfer price would be needed • Pithead price of coal under FSTAs
to assess state levies/royalties. should be revised annually by a
coal regulator on a basis that inter-
Pricing of Coal alia take into account prices
obtained through e-auction, FOB
 Ideally coal price should be determined price of imported coal (both
in a competitive market. This, however, adjusted for quality) and domestic
is not possible as long as the number production cost, inclusive of return
of suppliers are limited and as long as based on efficiency standards.
for the largest coal consuming sector,  Replace the practice of grading coal
i.e. power, coal cost is passed through under wide bands of the empirically
and fully compensated in determining determined UHV by the international
electricity tariff. However, since other practice of grading coal based on GCV.
users of coal are numerous and consume This is expected to encourage efficient
substantial quantities of coal, a strategy use of coal and promote use of washed
for competitive price discovery is coal.
possible. We recommend as follows:
 Coal prices should be made fully
• High quality coking and non- variable based on Gross Calorific Value
coking coals which are exportable (GCV) and other quality parameters.
may be sold at export parity prices
as determined by import price at
the nearest port minus 15%. This Reducing Coal Cost
practise is currently being adopted
satisfactorily for supply of good  Rail freight rates for coal transport
quality coking coal to the steel should be rationalised. Cross subsidy
industry. surcharges imposed on freight traffic
• 20% of the total coal produced to benefit passenger fares must be
should be sold through e-auctions. reduced. Alternate means for moving
For e-auctions to be successful, CIL coal through coastal shipping, river/
should, directly or otherwise, canal movement and coal slurry
ensure availability of coal and offer through pipeline must be promoted
it for sale to meet the total demand. where feasible.
Quantities to be sold through  Infrastructure status should be extended
e-auction from different mines must to the coal industry. Duties on capital
be determined annually with a goods imported for coalmines must be
monthly mine-wise schedule to be lowered to put them at par with duties
independently monitored and on imports for other energy sub-sectors.
enforced by a coal regulator.  There is a need to improve governance
• Remaining coal should be sold for dealing with malpractices and
under long-term Fuel Supply and corruption in the coal industry. It is
Transport Agreements (FSTAs). common knowledge that there is a

Coal Sector Policy

significant black market for coal Regulation

obtained through pilferage and illegal
 Institute an independent regulatory
mining of abandoned mines worked
body to regulate upstream allotment
by local inhabitants. Apart from the
and exploitation of available coal blocks
loss of royalty to the state there is,
to yield coal, coal bed methane, mine
more importantly, loss of precious lives
mouth methane, coal to liquid and for
resulting from unsafe mining practices.
in-situ coal gasification. The proposed
 Coal companies should be required as Regulatory Body would, as an interim
per international practice to “prepare” measure, approve coal price revisions,
and “dress” coal prior to sale. ensure supply of coal to the power
sector under commercially driven long-
Facilitating production term FSTAs, facilitate the development
of formulae/indices for resetting coal
 Strategies for matching the growth of prices under long-term fuel supply
infrastructure needed for movement of agreements, monitor the functioning
coal to load centres should be aligned of the proposed e-auctions, ensure that
with the growth of coal industry. the price discovery through e-auctions
 Wherever the techno-economic is free of distortions, regulate trading
parameters of the geological resource margins, develop a mechanism for
demands development of underground adequate quantities of coal imports
mine, related technology must be under long-term contracts to bridge
encouraged by giving incentives to the gap between supply and demand
operators because underground mining thereby assuring that the e-auctions and
helps preserve the land form and extract consequent price discovery does not
deep seated resource. take place in a supply constrained
market and, finally, create the
 National Rehabilitation and
environment for a competitive coal
Resettlement Policy for people affected
market to operate. Once the market
by coal/lignite mining projects should
matures, all large consumers (including
be mooted. Such policy should be
power) will become part of a
acceptable to all state governments.
competitive coal market with purchases
 Grounding coal projects is often delayed through both long-term FSTAs and e-
due to environmental regulations and auctions. It is stressed that once a
delays in getting approval for the competitive market develops the role
project’s Environmental Management of Regulator in determining the prices
Plan (EMP). Simplification of would become one of merely ensuring
procedures, preparation of a free and transparent market for coal.
comprehensive EMPs and A key responsibility of the Regulator
demonstration of environmental would be to make India, with the third
responsibility on the ground can help largest reserves of coal in the world, a
reduce such delays. A reserve of long-term player in the highly liquid
compensatory afforestation built in international market for coal that
advance should be accepted against realises long-term trades under well-
specific project-wise commitments to tested indices such as the Japan coal
reduce such delays. import index.
 Notify in-situ coal gasification and coal  The proposed Regulator must facilitate
liquefaction as end-uses under the replacement of current coal linkages
current captive consumption policy. for power plants with FSTAs. As a
This will encourage private enterprise step towards abolishing coal linkages
to invest in development of these new completely, these linkages could be
technologies. made tradable in the first instance. This

Integrated Energy Policy

is expected to make coal movements Policies requiring legislative amendments:

more optimal and responsive to market
forces.  Amend Section 3 of the Coal Mines
 The Regulator must ensure that mines (Nationalisation) Act, 1973 to facilitate
are planned, designed and developed in (a) private participation in coal mining
a scientific manner giving due for purposes other than those specified
importance to coal conservation and (b) offering of future coal blocks
thereby maximising percentage of coal to potential entrepreneurs through
recovery from geological blocks. competitive bidding.
 The Regulator must standardise norms  Raise the domestic level of trading and
of operation, establish benchmarks and marketing of coal by removing it from
ensure that coal companies raise their the list of essential commodities.
level of competence to be at par with  Amend the provisions of Contract
international standards. Labour (Regulation & Abolition) Act,
1970 to facilitate offloading of certain
activities in coal mining for improved
economics of operations.

Oil and Gas Sector

Oil and Gas Sector Policy

The Indian Petroleum industry is one Corporation (IOC) for refining and marketing.
of the oldest in the world. Oil was struck at The Government took over the multinational
Makum near Margherita in Assam in 1867. controlled petroleum companies like Burmah
The industry has come a long way since then. Shell, Esso and Caltex between 1974-79. Oil
At the time of independence in 1947, the India limited (OIL) which was a Joint Venture
country produced about 0.25 Mt of crude oil Company with equal share of Burmah Oil
in Assam and refined 0.23 Mt of crude oil. Company and Government of India became a
Digboi was the only refinery and the market wholly owned PSU in 1981.
infrastructure was confined to urban and well
populated areas. 4. The steep increase in oil prices during
1973-74 and hardly any increase in indigenous
2. The Indian petroleum industry in the production of crude oil put a heavy burden on
post independence period (1947-2005) has passed the economy due to an escalating import bill.
through three distinct phases To meet this challenge, augmentation of
indigenous production of hydrocarbons and
 Early phase (1947 to 1969) their accelerated exploitation became the key
 Development phase (1970 to 1990) element of planning and development strategies.
Both ONGC and OIL took up the challenge
 The economic liberalisation phase
and formulated ambitious exploration
programmes. The exploration efforts yielded
results in the form of discoveries of oil and gas
3. Historically, the Indian petroleum in a number of fields in the Bombay Off-shore
industry was controlled by few Anglo- area. Oil was struck in Bombay High in 1974.
American companies. They maintained their This led to substantial increase in the
dominance till the end of 1950s. After production of crude oil thereby reducing the
independence, the newly independent state oil import bill considerably. Another
wanted to play a significant role in this vital prominent discovery was the South Bassein gas
industry. The industry policy resolutions of field. Exploration was extended to other
1948 and 1956 had clearly stated the offshore areas like the Eastern coast and off the
government’s aspiration and future plans for Andaman Islands, with varying degrees of
core industries like petroleum. All future success.
development of the petroleum industry was
reserved for public sector undertakings. But 5. The liberalisation and globalisation
foreign assistance was a necessity at least in the processes started in 1991 have thrown up many
early stages. It was recognised that majority opportunities and challenges for the Petroleum
ownership and effective control of critical & Natural Gas Sector in India. To increase
industries like petroleum should always rest in domestic production of crude oil and natural
Indian hands and the need for developing an gas, the New Exploration Licensing Policy
independent and self-reliant petroleum industry (NELP) was launched in 1997-98. 110 blocks
was felt. The industrial Policy Resolution of have been awarded under the five bidding
1956 specifically increased the role of public rounds under this policy. The sixth round of
enterprises, and led to the creation of Oil & bidding (NELP-VI) for 55 blocks has recently
Natural Gas Commission (ONGC), for been announced. The acquisition of equity oil
exploration and production, and Indian Oil & gas abroad in a number of countries is also

Integrated Energy Policy

being pursued by both PSUs and Private Sector Petrochemicals Limited and the Numaligarh
companies. In order to meet the shortfall in Refinery.
the demand of natural gas, imports from Iran,
Myanmar and Central Asian Countries through 8. With the recent discoveries in the
transnational pipelines are being pursued. The Krishna-Godavari basin, domestic natural gas
import of gas in the form of liquefied natural is expected to become the second most
gas (LNG) has already started at the Dahej dominant commercial energy source in India.
LNG terminal in 2005. Other avenues for Efforts are being made to raise import of
import of LNG are also being explored. natural gas in the form of LNG and through
transnational gas pipelines. The rising price of
6. The consumption for petroleum natural gas, though, would make it
products including refinery fuels grew from uncompetitive for use in the power sector.
2.72 Mt in 1947 to 120.17 Mt in 2004-05.
Excluding refinery fuels, the consumption of 9. Till 1975, the prices of petroleum
petroleum products in 2004-05 was 111.59 Mt. products were based on import parity prices.
India exported 18.21 Mt of products in 2004-05 Based on the recommendation of the Oil Price
and product exports have risen to 21.5 Mt in Committee of 1976, the Administered Price
2005-06. However, domestic consumption in Mechanism (based on a retention pricing
2005-06 rose only marginally to reach 111.92 concept) was introduced. This mechanism was
Mt. India is now a net exporter of petroleum dismantled in a phased manner starting
products. The crude oil production, which had October, 1998 to 31st March, 2002. From 1st
increased from merely 0.25 Mt in 1947-48 to April, 2002, the prices of petroleum products
33.02 Mt by 1990-91, has stagnated since then. except domestic LPG and Kerosene for Public
The balance requirement has been met through Distribution System (PDS) are again being
imports. With the setting up of a number of fixed on an import parity basis. However,
refineries over the years, the country is self- with the recent steep increase in the prices of
sufficient in its refining capacity which crude, the government has put on hold the
currently stands at 132.47 Mt. A number of increase in prices by the oil companies. The
refineries are either expanding their capacity issue of pricing of petroleum products is under
or planning new investments with a view to review.
export products. Net of export, domestic
production of crude met about 28% of the 10. With a view to protect the poorer
country’s requirement and the balance 72% section of the society; subsidies on kerosene
was imported in 2004-05. With the increasing and Liquefied Petroleum Gas (LPG) had been
prices of crude oil in the international market, introduced. These subsidies were to be phased
the oil import bill and oil security are causes of out by 31st March 2002, but this was not
concern. To reduce the gap between demand done. A flat subsidy rate under “PDS Kerosene
and supply, in addition to enhanced production and Domestic LPG Subsidy Scheme, 2002”
of crude oil & natural gas, the oil companies was approved. The subsidy was equal to the
are seeking opportunities to tap coal bed difference between the cost price and issue
methane, blend motor spirit with ethanol and price as on March 31st, 2002 and was to be
promote bio-diesel as a diesel substitute and/or phased out in 3 to 5 years. The oil marketing
for blending with diesel. However, these efforts companies (OMCs) were to adjust the retail
have yet to make any impact. selling prices of these products in line with
international prices during this period. Again,
7. With a view to create competition, this has not been done and with the
new entrants are being allowed to market unprecedented sharp increase in the
transportation fuels namely, motor spirit, high international prices, the under recoveries of
speed diesel and aviation turbine fuel since OMCs on these accounts have been rising and
March, 2002. The Government has issued retail seriously affecting their profitability. The
licenses to Reliance Industries, Essar Oil, Shell, Government has been making good these losses,
ONGC, Mangalore Refineries & in part, by asking upstream companies to offer

Oil and Gas Sector Policy

discounts on the price of domestic crude and to optimal development of the hydrocarbon
by issuing GOI bonds to the oil marketing resources.
14. Given its lack of success in finding oil
11. The petroleum and gas sector is also and gas in the Indian sedimentary basin, ONGC
devoid of any competition or independent has been successfully acquiring equity oil and
oversight of either its upstream or the gas overseas. While these are largely commercial
downstream activities. Despite the dismantling opportunities, they do help energy security
of the Administered Price Mechanism, the GOI concerns to the extent that they increase access
continues to control the pricing of automotive to a more diversified supply base under certain
fuels, LPG, a large part of domestic natural eventualities. Indian Oil Corporation has also
gas, and PDS kerosene. Again despite the successfully tapped retailing and refining
presence of several domestic, public and private opportunities overseas. Other players have also
players as also some foreign groups, there is no looked at various opportunities overseas but
real competition in the sector except in with little success. The risks of the overseas
peripheral products such as lubricants. In fact, operations are largely being carried on the
the prevailing pricing & taxation policies and balance sheets of the parent Indian companies.
the market structure provide significant
protection to refineries. The result is that India’s 15. The following policy initiatives are
refining capacity exceeds the demand by 18% suggested for the oil and gas sector:
Pricing of Petroleum Products
12. Competition is limited in the
 Full price competition at the refinery
downstream sector to cornering retail outlets
gate and at the retail level for all
and is often wasteful. Efficiencies in retailing
petroleum products should be pursued.
can only be realised if companies are allowed
Differential pricing in different markets
to set their own prices and entry barriers for
may be permitted to reflect the cost of
new entrants are dismantled. These barriers
supply. State governments may choose
currently include minimum investment
to subsidise prices in remote areas in a
requirements and lack of open access to certain
transparent manner through their
marketing infrastructure. The Petroleum &
budgets. Similarly, the Central
Natural Gas Regulatory Board Act, 2006 has
Government could subsidise certain
already been notified and should, hopefully,
strategic consumption or lifeline energy
raise the level of competition in the sector on
consumption transparently through its
level terms.
13. On the upstream side, the dominance  In case of products wherein demand
of the public sector continues although in far exceeds available supply, exceptions
recent rounds of bidding under New may be made to the above policy of
Exploration Licensing Policy (NELP) domestic full competition. Such products may
private sector and state sector participation need to be allocated for specific end-
and, to a more limited extent, foreign uses and priced differently based on
participation has emerged. India’s currently economically valid arguments. As an
known oil and gas reserves will be exhausted example, the case of pricing and
in 23 years and 38 years respectively at current allocating gas has been detailed under
production levels. While exploration has not Chapter V.
resulted in any significant new oil find, large  Till such competition is introduced we
gas finds have been reported though uncertainty may use a pricing mechanism that
still prevails with respect to precise gas mimics it. The pricing mechanism of
availability. The current upstream regulation petroleum products on import parity
provided by DGH is neither independent nor basis needs to be replaced by a trade
comprehensive in a technical sense with respect parity basis i.e. products for which the

Integrated Energy Policy

country is a net exporter/importer over and subsidised access to PDS kerosene

a specified time period should have and LPG by the intended beneficiaries.
export/import parity prices. A product The notification of the Petroleum &
for which the country is self-sufficient Natural Gas Regulatory Board Act,
should have a price in between the two 2006, is thus welcome.
depending on the price elasticity of  On the upstream side, Directorate
demand for the product in the domestic General Hydrocarbons (DGH), an arm
market. Trade parity pricing should of the Ministry, oversees allocation and
ideally be a short-term measure; the exploitation of oil & gas reserves and
most preferred option being price enforces profit sharing with exploration
competition at the refinery gate and at & production companies. The current
the retail level. arrangement needs to be strengthened
 The domestic economy may have to and made independent.
be protected against short-term
volatility in the International market
caused by speculators and manipulators.
An option to achieve this could be to  The high price difference between
allow price adjustments based on kerosene and diesel (Rs.21 per litre in
lagging 1-3 month average prices, 2005-06) leads to large-scale diversion
thereby forcing oil companies to use of kerosene from the public distribution
short-term hedging. Another alternative system to adulteration of diesel.
would be to use long-term supply Similarly, differential pricing of LPG
contracts linked to a variety of more for domestic and commercial use leads
stable energy price indices. In a period to leakages increasing the burden of
of continuously rising prices the subsidies. The mechanism for subsidised
government can adjust the ad-valorem supply of kerosene and LPG needs to
taxes and levies in a revenue neutral be revised so as to make it transparent
manner to cushion the price rise for and directed only to the targeted
the consumer. Of course any persistent beneficiaries. For this purpose, the
price change that cannot be absorbed possibility of introducing a coupons
by change in taxes and duties, should and/or smart/debit cards directly to
be passed on to the consumers. the intended beneficiaries should be
explored. This would eliminate dual
Petroleum & Natural Gas Regulation prices for kerosene and LPG in the
market. Further, the subsidies on these
 There is a need to have an independent products should be charged directly to
regulatory body to regulate upstream the budget and not loaded on to the oil
allotment and exploitation of available companies.
oil and gas reserves and provide
 Ministry of Petroleum & Natural Gas
downstream regulation that primarily
(MOP&NG) could bid out available
ensures competition on level terms in
subsidies for LPG and kerosene to
refining, transportation, distribution
obtain the lowest price at which a
and retailing of oil and gas. The
given amount of these products could
Regulator must review the current
be supplied to a defined number of
regime that limits competition from
targeted beneficiaries or on the basis of
both foreign and domestic private
the minimum subsidy at which these
players in the downstream sectors. A
could be supplied in specified quantities
key responsibility of the Regulator
and at specified price to the targeted
would be to enforce universal service
number of beneficiaries.
obligations by marketing companies
active in a region as well as universal

Oil and Gas Sector Policy

Reserve Enhancement and Competition  Raise the level of diplomacy to access

hydrocarbon reserves overseas and
 The assessment of the sedimentary
realise gas pipelines to India.
basins and development of
unconventional hydrocarbons such as  Importing LNG through long-term
shale gas, biogenic gas and tight gas contracts provides a flexible alternative
reservoir/basins needs to be accelerated, to pipelines. Since the global gas market
and outsourcing of the evaluation of has developed and LNG trade has
potential should be undertaken increased, the price of natural gas is
wherever needed. likely to match the opportunity cost
of selling it as LNG.
 Provide level terms for foreign
operators willing to bring technology
and investment to recover oil/gas from Strategic Reserves
currently abandoned and/or marginal  Maintain a reserve of strategic-cum-
fields with the right of first refusal to buffer stock equivalent to 90 days of
acquire any/all of the production on oil imports and/or buy options for
competitive terms. emergency supplies from neighbouring
 All non-dedicated transportation and large storages such as those available in
distribution assets in the oil and gas Singapore. Operating the strategic
sector including facilities at ports and reserves in cooperation with other
airports should provide services and/ countries who maintain such reserves
or access to competing suppliers under could also increase their effectiveness.
common carrier principles.
 Follow international best practices Natural Gas Allocation and Pricing
governing the declaration of
 Natural gas price can be determined
hydrocarbon finds and claims relating
through competition among different
to in-place reserves discovered,
producers where multiple sources and
acquisition of required technologies and
a competitive supply-demand balance
pooling of development risks so as to
exist. As long as there is shortage of
maximally exploit a reserve in a timely
natural gas in the country and the two
fashion. This is critical to India’s energy
major users of gas, namely fertiliser
security concerns.
and power, work in a regulated cost
 The Mumbai High Crude is lighter plus environment, a competitive market
and sweeter than general crude average determined price would be highly
and can fetch a higher price. Its price distorted. Such distortions would get
may be discovered through an open further amplified by the prevailing
auction wherein Government can mop regime of fertiliser subsidies & power
up incremental revenue. sector subsidies and cross subsides. In
 In line with crude oil and coal, Natural such a situation price of domestic
Gas and LNG may also be included in natural gas and its allocation should be
the category of declared goods so that independently regulated on a cost plus
a central sales tax of 4% is levied on basis including reasonable returns.
them and exemption from any state  Another option could be to price gas
sales tax is extended. on a net-back basis. Should a scenario
 Instead of a piecemeal approach to wherein gas becomes 10-12% of India’s
reform in the petroleum and natural energy mix materialise by 2031-32,
gas sector, there is a need to implement some 60% of the gas supply will be
a comprehensive reform package used for power generation. This would
including pricing, regulation, industry mean that beyond the level of gas
structure, subsidies, etc. consumption in the fertiliser,

Integrated Energy Policy

petrochemical, automotive and that the Regulator shall moderate access

domestic sectors, gas must compete to gas pipelines as common or contract
with coal as the key alternative for carriers. The Regulator shall also ensure
power generation. This implies that fair trade and competition amongst
the cost of generating peak or base entities, specify the pipeline access code,
electricity using gas cannot exceed the ascertain transportation rates for
cost of peak or base electricity from common or contract carriers and
coal, the cheapest alternative. A determine access to city or local natural
competitive coal market is thus gas distribution networks so as to
important for setting a proper price of ensure competition amongst entities as
natural gas on a net-back basis. An per the pipeline access code. These
alternative for a gas producer is to provisions would pave the way for
export gas, in which case the domestic accelerated development of the gas
gas price could be the net realisation of pipeline network in the country.
the domestic natural gas producer after
investing and getting a return on the Using Gas Abroad
investment needed to make the natural
gas tradable across borders through  In case India can use diplomacy to
either a trans-border pipeline or access cheap natural gas under long-
through liquefaction and shipping term (25-30 years) arrangements, it
facilities. This suggests that in the short- should consider setting up captive
term, natural gas prices should be fertiliser and/or gas liquefaction
determined on a cost plus basis by an facilities in such countries. This would
independent regulator. essentially augment energy availability
for India.
Gas Pipeline Network
 The Petroleum and Natural Gas
Regulatory Board Act, 2006, provides

Energy-Environment Linkages
Chapter XIII

Energy-Environment Linkages
In order to achieve sustainability in the appropriately reflected in the prices of various
energy chain, it is important to identify, fuels and energy sources.
measure, value, and integrate the environmental
impacts of activities in the energy sector.  Studies should be carried out to
Environmental concerns are associated with all determine the economic value of
forms of energy including fossil fuels, nuclear externalities in the production and use
energy, and renewables, throughout the energy of different sources of energy.
chain from exploration/mining, transportation,
and generation to end-use. However, the precise 13.1.1 EXPLORATION, P RODUCTION AND
nature, intensity, and spatial extent of
environmental impacts varies across different
energy forms. These effects can occur at the 3. The environmental impacts of various
household, local, regional, national or global energy options are of growing concern owing
levels. India, with its size, diversity and current to increasing and widespread use of energy.
pace of growth, needs to use and to develop all Coal mining, exploration and production of
forms of energy sources optimally, in particular oil and gas (both on and off shore) have a wide
to be able to meet its poverty alleviation goals. range of adverse environmental impacts. Some
of these impacts may be reversible, but many
13.1 ENERGY SUPPLY SIDE: are irreversible. Some of the adverse
ENVIRONMENT CONCERNS environmental impacts of open cast mining
may be contained, but on the other hand, the
2. Energy production and use often loss of biodiversity due to loss of, or severe
involves environmental externalities. These disturbance to, habitats may be irreversible.
externalities, as well as any social externalities Advanced technologies and better management
such as for example, the social value of practices may, however, reduce environmental
employment created in a bio-diesel programme, impacts. For example, by using the latest
need to be economically valued and exploration and drilling technologies, the

Table 13.1
Environmental Impacts Associated with Energy Transformation Based on Fossil Fuels
Stage of fuel cycle Natural gas Oil Coal
All stages/all fuels CO2, CH4, N2O, NOx, CO, Reactive organic gases, Hydrocarbons, partial
trace metals, and thermal pollution
Exploration/Mining Drilling accidents, sludge Drilling accidents, Mining injuries, land
sludge, SO2 degradation, SO2, NOx
Processing/Refining Refinery accidents, Refinery accidents, SO2, SPM
waste disposal waste disposal SO2
Transport/distribution Pipeline accidents, Pipeline accidents, SPM, SO2, NOx,
Liquefied natural oil spills, SO2 CO, CO2
gas explosion
Conversion/electricity Ash disposal, SO2 Fly ash SO2, CO2,
generation NOx, Sludge

Integrated Energy Policy

adverse impact of petroleum exploration on Additionally, decommissioning of nuclear

natural ecosystems can be minimised. plants entails the disposal of radioactive wastes.
Transportation of coal and petroleum products While significant technological development
by rail, road and sea also causes considerable has been made in the area of radioactive waste
environmental damage. Pollutants associated disposal and decommissioning, they are yet to
with the combustion of fossil fuels SPM, SOx, be proven at large enough scale to satisfactorily
NO x, and CO 2 either in transformation resolve economic issues. However, despite these
activities (to petroleum products or power and risks, global data suggests that of all the
heat combustion) or in end-uses pose a major conventional energy options, nuclear energy
threat to both ecological and manmade has posed the least risks in terms of mortality
resources, and to human health. Additionally per billion megawatt hours of generation.
the poor calorific content of Indian coal implies
that the disposal of fly ash generated in thermal 13.1.3 ENVIRONMENTAL IMPACTS OF LARGE-
power plants is a major concern. Some of the SCALE HYDROPOWER
environmental impacts associated with energy
based on fossil fuels are summarised in the 5. The major impacts of large hydro
Table 13.1. projects are rather site specific, and in particular,
centre around submergence of land and
displacement of traditional communities from
their ancestral domains. Such displacement
inflicts a high social cost including change in
4. While SPM, CO 2, SOx, and NO x, the resource base of traditional culture and a
emissions and waste disposal are dominant in loss of livelihood. In such cases, rehabilitation
the context of generating energy from fossil efforts can address only a part of the social
fuels, nuclear power is associated primarily costs experienced. In addition, loss of pristine
with risks of radioactive release. Environmental natural forests and its associated unique
impacts identifiable at various stages of the biodiversity may occur due to submergence.
nuclear fuel cycle are: mining (accidents, release Methane emissions, a major greenhouse gas,
of radon gas and radioactive dust from Uranium may also be emitted in large quantities if
mines and mills), radioactive seepage from waste insufficient care is taken to remove vegetative
and land degradation, processing (accidents), matter susceptible to anaerobic microbial
transport (accidents, risk of proliferation), and processes from the submerged area.
electricity generation (risk of catastrophic Submergence of large areas may also increase
accidents, low and high level radioactive wastes). the risk of seismic events, for which dams need

Table 13.2
Supply Side, Local and Regional Environmental Impacts
Impact/Option SO2, Solid Liquid Thermal impact Flora, Forest Involuntary
NOxTSPs Waste effluent on receiving Fauna loss resettlement
waters impacts
Thermal power Y Y Y Y Y Y Y
(inc. Mining)
Hydro-power N N N N Y Y Y
Nuclear Power N Y Y Y Y Y Y
(inc. Mining)
Petroleum Y N Y Y Y Y Y
(inc. Mining)
Transmission N N N N Y Y Y
& pipelines

Energy-Environment Linkages

to be designed, for if they lead to failure of the vehicles are the major source of CO emissions,
dam structure, it may be catastrophic for contributing over 85% of total emissions, while
downstream populations. Other adverse impacts diesel-driven vehicles are the major source of
include the spread of water-borne disease, such NOx, contributing over 90% of total emissions.
as schistosomiasis. Improper use of energy in the agricultural
sector has resulted in the depletion of
6. Table 13.2 summarises the supply side groundwater in several parts of the country.
environmental impacts of the major forms of Indoor air pollution due to the domestic
conventional energy options: consumption of both traditional and
commercial fuels is most likely the second
13.1.4 E NVIRONMENTAL I MPACTS OF largest source of disease, particularly among
RENEWABLE ENERGY women and children, in the country.

7. Energy from renewable sources is 9. To understand the demand side of

generally viewed as involving lower energy-environment interactions, one can begin
environmental impacts than that based on fossil with an impact matrix that classifies each fuel
fuels, nuclear and large hydropower. The main by key end-use, environmental effects,
environmental benefits of renewable energy indicators, and level of impact. For example,
sources is that they avoid the air pollution diesel fuel is (a) commonly consumed in trucks
emissions from fossil fuels and the catastrophic and buses; (b) has negative impacts on
risks associated with nuclear plants. Small hydro respiratory health, acid deposition, lead
projects may also help conserve water supply. contamination and related health ailments, (c)
Biomass based systems promote the cultivation has effluents of CO and particulates that can
of energy crops in wastelands and help arrest be measure