Demand and Supply Scenario
In the recent years, India’s energy consumption has been increasing at one of the fastest rates in the world due to population growth and economic development. Primary commercial energy demand grew at the rate of six per cent between 1981 and 2001 (Planning Commission). India ranks fifth in the world in terms of primary energy consumption, accounting for about 3.5% of the world commercial energy demand in the year 2003. Despite the overall increase in energy demand, per capita energy consumption in India is still very low compared to other developing countries.
India is well-endowed with both exhaustible and renewable energy resources. Coal, oil, and natural gas are the three primary commercial energy sources. India’s energy policy, till the end of the 1980s, was mainly based on availability of indigenous resources. Coal was by far the largest source of energy. India is, however, poorly endowed with oil
assets and has to depend on crude imports to meet a major
share of its needs (around 70 percent). India’s primary energy mix has been changing over a period of time.
Despite increasing dependency on commercial fuels, a sizeable quantum of energy requirements (40% of total energy requirement), especially in the rural household sector, is met by non-commercial and traditional energy sources, which include fuelwood, crop residue, biomass and animal waste, including human and draught animal power. The usage
of such sources of energy is estimated at around 155 mtoe
per annum. However, other forms of commercial energy of a much higher quality and efficiency are steadily replacing the traditional energy resources being consumed in the rural sector.
Coal is the most important & abundant fossil
fuel in India and accounts for 55% of India's energy need.
India's industrial heritage was built upon indigenous coal,
largely mined in the eastern and the central regions of the
country. Thirty per cent of commercial energy requirements
are met by petroleum products, nearly 7.5 per cent by natural
gas and 3.5 per cent by primary electricity.
Resource augmentation and growth in energy supply has not kept pace with increasing demand and, therefore, India continues to face serious energy shortages. This has led to increased reliance on imports to meet the energy demand.
India faces coal shortage of 24 MT . Production of petroleum reserves has been stretched from 5.7 MT during 1970/ 71 to 110 MT in 2003/ 04. Natural gas demand too has been steadily growing at the rate of about 6.5% during the last 10 years.
India now ranks third amongst the coal producing countries in the world. Being the most abundant fossil fuel in India till date, it continues to be one of the most important sources for meeting the domestic energy needs and accounts for 55% of the country’s total energy supplies.The development of core infrastructure sectors like power, steel, and cement are dependent on coal.
Coal has been recognized as the most important
source of energy for electricity generation in India. About
75% of the coal in India is consumed in the power sector.
In addition, other industries like steel, cement, fertilizers,
chemicals, paper and thousands of medium and small-scale industries
are also dependent on coal for their process and energy requirements.
In the transport sector, though direct consumption of coal
by the Railways is almost negligible on account of phasing
out of steam locomotives, the energy requirement for electric
traction is still dependent on coal converted into electric
Through sustained increase in investment, production of coal increased from about 70 MT (million tonnes) in early 1970s to 382 MT in 2004/ 05. Most of the coal production in India comes from open pit mines contributing to over 81% of the total production while underground mining accounts for rest of the national output. Despite this increase in production, the existing demand exceeds the supply. India faces coal shortage of 24 MT. This shortage is likely to be met through imports mainly by steel, power, and cement sector. India exports insignificant quantity of coal to the neighbouring countries. The traditional buyers of Indian coal are Bangladesh, Bhutan, and Nepal.
Inspite of various policy initiatives to diversify
the fuel mix but considering the limited reserve potentiality
of petroleum & natural gas, eco-conservation restriction
on hydel project and geo-political perception of nuclear power,
it is becoming increasingly evident that coal will continue
to occupy centre-stage of India's energy scenario. Indian
coal offers a fuel source to domestic energy market for the
next century & beyond. Based on estimates, the consumption
of coal is projected to rise by nearly 40 percent over the
next five years and almost to double by 2020.
Access to affordable and reliable electricity is critical to a country’s growth and prosperity. India has made significant progress towards the augmentation of its power infrastructure. In absolute terms, the installed power capacity has increased from only 1713 MW (megawatts) as on 31 December 1950 to 118419 MW as on March 2005. The all India gross electricity generation, excluding that from the captive generating plants, was 5107 GWh (gigawatt-hours) in 1950 and increased to 565 102 GWh in 2003/ 04.
Energy requirement increased from 390 BkWh (billion kilowatt-hours) during 1995/ 96 to 591 BkWh (energy) by the year 2004 /05, and peak demand increased from 61 GW (gigawatts) to 88 GW over the same time period. India experienced energy shortage of 7.3% and peak shortage of 11.7% during 2003/ 04. Though, the growth in electricity consumption over the past decade has been slower than the GDP’s growth, this increase could be due to high growth of the service sector and efficient use of electricity.
Per capita electricity consumption rose from merely 15.6 kWh (kilowatt-hours) in 1950 to 592 kWh in 2003/ 04. However, it is a matter of concern that per capita consumption of electricity is among the lowest in the world. Moreover, poor quality of power supply and frequent power cuts and shortages impose a heavy burden on India’s fast-growing trade and industry.
Oil and Natural Gas
The latest estimates indicate that India has around 0.4% of the world’s proven reserves of crude oil. The production of crude oil in India has increased from 6.82 MT in 1970/ 71 to 33.38 MT in 2003/ 04 (MoPNG). The production of natural gas increased from 1.4 BCM (billion cubic metres) to 31.96 BCM during the same period. The quantity of crude oil imported increased from 11.66 MT during 1970/ 71 to 81 MT by 2003/ 04.
Besides, imports of other petroleum products increased from 1 MT to 7.3 MT during the same period. The exports of petroleum products went up from around 0.5 MT during 1970/ 71 to 14 MT by 2003/ 04. The refining capacity, as on 1 April 2004, was 125.97 MTPA (million tonnes per annum). The production of petroleum products increased from 5.7 MT during 1970/ 71 to 110 MT in 2003/ 04.
India’s consumption of natural gas has risen faster than any other fuel in the recent years. Natural gas demand has been growing at the rate of about 6.5% during the last 10 years. Industries such as power generation, fertilizer, and petrochemical production are shifting towards natural gas. India’s natural gas consumption has been met entirely through domestic production in the past. However, in the last 4-5 years, there has been a huge unmet demand of natural gas in India, mainly required for the core sectors of the economy.
To bridge this gap, apart from encouraging domestic production, the import of LNG (liquefied natural gas) is being considered as one of the possible solutions for India’s expected gas shortages. Several LNG terminals have been planned in the country. Two LNG terminals have already been commissioned: (1) Petronet LNG Terminal of 5 MTPA (million tonnes per annum) at Dahej, and (2) LNG import terminal at Hazira. In addition, an in-principle agreement has been reached with Iran for import of 5 MTPA of LNG.
Renewable Energy Sources
Renewable energy sources offer viable option to address the energy security concerns of a country. Today, India has one of the highest potentials for the effective use of renewable energy. India is the world’s fifth largest producer of wind power after Denmark, Germany, Spain, and the USA. There is a significant potential in India for generation of power from renewable energy sources— wind, small hydro, biomass, and solar energy. The country has an estimated SHP (small-hydro power) potential of about 15000 MW. Installed combined electricity generation capacity of hydro and wind has increased from 19194 MW in 1991/ 92 to 31995 MW in 2003/ 04, with a compound growth rate of 4.35% during this period. Other renewable energy technologies, including solar photovoltaic, solar thermal, small hydro, and biomass power are also spreading. Greater reliance on renewable energy sources offers enormous economic, social, and environmental benefits.
The potential for power production from captive and field-based biomass resources, using technologies for distributed power generation, is currently assessed at 19500 MW including 3500 MW of exportable surplus power from bagasse-based cogeneration in sugar mills.
Increasing pressure of population and increasing use of energy in different sectors of the economy is an area of concern for India. With a targeted GDP growth rate of 8% during the Tenth Five-year Plan, the energy demand is expected to grow at 5.2%. Driven by the rising population, expanding economy, and a quest for improved quality of life, the total primary energy consumption is expected to be about 412 MTOE (million tonnes oil equivalent) and 554 MTOE in the terminal years of the Tenth and Eleventh Plans, respectively (Planning Commission 1999).
The International Energy Outlook 2005 (EIA 2005b) projects India’s gas consumption to grow at an average annual rate of 5.1%, thereby reaching 2.8 trillion cubic feet by 2025 with the share of electric power sector being of 71% by that time. Coal consumption is expected to increase to 315 MT over the forecast period. In India, slightly less than 60% of the projected growth in coal consumption is attributed to the increased demand of coal in the electricity sector while the industrial sector accounts for most of the remaining increase. The use of coal for electricity generation in India is expected to increase by 2.2% per annum during 2002–25, thus requiring an additional 59 000 MW of coal-fired capacity. Oil demand in India is expected to increase by 3.5% per annum during the same time.
It is quite apparent that coal will continue to be the predominant form of energy in future. However, imports of petroleum and gas would continue to increase substantially in absolute terms, involving a large energy import bill. There is, therefore, an urgent need to conserve energy and reduce energy requirements by demand-side management and by adopting more efficient technologies in all sectors.
Increasing pressure of population and increasing
use of energy in agriculture, industry and the domestic and
public sectors is an area of concern. At the same time, the
need to meet energy demand has created huge capital requirements
needed for setting up power plants, pipelines, ports, terminals,
railway tracks to move fuel etc.
As India continues to grow at the rate of 7-8
percent, energy security has become a core focus. In the recent years, the government has rightly recognized the energy security concerns of the nation and more importance is being placed on energy independence. On the eve of the 59th Independence Day (on 14 August 2005), the President of India emphasized that energy independence has to be the nation’s first and highest priority, and India must be determined to achieve this within the next 25 years.
Renewable energy sources offer viable option to address the energy security concerns of a country. Today, India has one of the highest potentials for the effective use of renewable energy. There is a significant potential in India for generation of power from renewable energy sources—wind, small hydro, biomass, and solar energy.
Other renewable energy technologies, including solar photovoltaic, solar thermal, small hydro, and biomass power are also spreading. Greater reliance on renewable energy sources offers enormous economic, social, and environmental benefits.
concerns over energy security, the Government of India has
taken multiple steps in recent years which include encouraging
private sector participation, a more holistic approach towards
broad basing its supply base, and improving efficiency in
the sector as a whole. Although India has made a start in
this direction, the Government would need to further its initiatives
in three areas:
• The Government would need to increasingly
enter into alliances and partnerships with key nations in
Asia, Africa, Latin America, etc. to diversify the energy
supply base and improve long term supply security.
• Currently, different energy segments
are viewed independently from a policy and regulatory perspective.
The importance of cross linkages between different energy
segments is now being appreciated and the importance of developing
an integrated energy policy to meet the common objective of
energy security is recognized.
• At an operational level, commensurate
investment would be required in developing infrastructure
viz. rail, road, port and power transmission which are critical
for efficiency in the energy value chain.
Looking at the subject in totality, the Government
has developed a comprehensive planning framework through the
Indian Hydrocarbon Vision 2025 that provides a detailed road
map for Indian hydrocarbon industry to enhance the country’s
The principal objectives of the Indian Hydrocarbon
Vision 2025 include:
• Developing the sector as a globally competitive industry,
ensure healthy competition and improve product standards
• Ensure energy security keeping in view strategic and
• Creating infrastructure to meet the demands for coal,
petroleum products and natural gas
• Rationalizing tariff and pricing policy to promote
• Putting in place necessary regulatory system
• Exploring new resources of hydrocarbons such as CBM
and Gas Hydrates
It is evident that one of the principal focus
of the Indian Hydrocarbon Vision is to draw private investments
through structural and pricing adjustments in specific energy
Key Imperatives for India
To meet its large and growing energy needs,
there are certain key imperatives for the Indian energy sector:
• Provide impetus for Private Participation
Private participation in the form of financial,
technological and managerial are needed to meet the challenging
growth targets. This would also bring in right competition
and efficiencies, needed in the sector. Recognizing this,
the GOI has allowed private participation in Oil and Gas exploration
and production, coal mining (albeit for captive use) and in
hydro power and renewable energy. NELP for oil and gas allows
100 percent foreign equity investment and is liberal in allowing
self-marketing by the investors.
To sustain continued private participation,
a number of important steps have to be taken further.
• Clarity in Policy Framework
There is a need to evolve a clear policy framework
for the energy sector. Clarity is required in matters related
to pricing of energy, the target market structure, cross-border
investments and imports and exports of energy products. In
India, clarity is beginning to emerge in some of these areas
and debates have been initiated in others.
• Independent Regulatory Mechanism
An independent regulator is required for the
energy sector to determine prices in the first instance and
once competition develops to ensure that there is a level
playing field for all. Today there is much inefficiency in
energy sector pricing due to the monopolistic market structure.
Prices are either self determined by the monopoly companies
or in some cases inappropriately priced according to import
parity prices. There has been adequate debate on this issue
and it appears that sooner than later India will have full
fledged regulators for the energy sector.
• Develop Energy Markets
Well functioning energy markets are important
to attract investments and bring efficiency in the sector.
Currently, there is limited market activity (examples are
an internet portal based trading for a limited quantity in
case of coal and auctioning in case of gas for limited quantities).
Markets will be facilitated and effective when there are many
players and there is an organized marketplace for energy products.
• Actively pursue cross-border investments
in Energy Sector
Energy equity in overseas assets is part of
India’s strategy to acquire energy security. This includes
Indian companies such as ONGC, Coal India, GAIL, Reliance
etc. acquiring or seeking to acquire equity through joint
ventures in oil and coal rich nations. The Government is also
pursuing strategic alliances with various countries. The recent
memorandum of understanding with China on this issue is an
example. As per the Indian minister for petroleum and natural
gas, “We have realized that when we compete in an unhealthy
manner to acquire oil fields in third countries, we only end
up driving costs for each other. We have ended up paying billions
of dollars more by trying to outbid each other everywhere.
This will end, as co-operation will precede competition.”
Besides, the Indian Government is also seriously
exploring the nuclear option to meet its energy needs and
it is looking at co-operation in this area with the nuclear
suppliers’ group countries.
• Create an enabling infrastructure
for Energy Sector growth
Investments in ports, railways, pipelines and
power transmission are urgently needed to attract energy sector
investments in the first place and to enable efficient energy
choices. Today, the capacities of these infrastructures are
fully stressed and there is much inefficiency. Recognizing
this, the Government has announced policies to involve private
participation and India is witnessing private investment in
ports, pipelines and power transmission. Even in case of railways,
the Government has recently announced a policy decision to
open container transportation to private sector on a common-carrier
principle using the existing railroads.
• Rationalize taxes and subsidies
to allow efficient pricing
The taxes and duties levied on energy products
are lopsided leading to inefficient energy choices. Taxes
on petroleum products such as aviation fuel for example are
among the highest in the world while railway passenger tariffs
are highly subsidized. Likewise, there are high subsidies
for household cooking fuels such as kerosene and Liquefied
Petroleum Gas (LPG) and even electricity for domestic consumption.
The need for cost reflective pricing is being increasingly
recognized as exemplified by the recent Rangarajan Committee
Report, the Roadmap for LPG price rationalization by the Government
as well as the recent notification of the power tariff policy
of the Government.
• Provide government support for
The Government needs to create a policy framework
that provides incentives for energy efficiency. This could
for example mean providing incentives in urban areas for mass
transport systems, and promoting R&D in energy efficiency.
The environment should encourage energy efficiency companies
to come up and operate profitably. Awareness has been steadily
increasing and policy makers are now thinking on how this
can be achieved.
In parallel, India is also emerging as a significantly
active market in terms of Clean Development Mechanism (CDM)
projects being conceptualized and registered with the Executive
Board (EB). The growing awareness of the CDM benefits would
make this an important area for investments in the Indian
energy sector. CDM should also give the necessary fillip for
energy efficiency measures in India.
The Government of India is recognizing the importance
of private sector participation, and independent regulation
in the energy sector. The future holds a lot of opportunities
for international and domestic private participation.