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Energy Efficiency Scenario in India


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Energy has been universally recognized as one of the most important inputs for economic growth and human development. There is a strong two-way relationship between economic development and energy consumption. On one hand, growth of an economy, with its global competitiveness, hinges on the availability of cost-effective and environmentally benign energy sources, and on the other hand, the level of economic development has been observed to be reliant on the energy demand.

Energy is one of the major drivers of a growing economy like India and is an essential building block of economic development. In an effort to meet the demands of a developing nation, the Indian energy sector has witnessed a rapid growth. Areas like the resource exploration and exploitation, capacity additions, and energy sector reforms have been revolutionized.

However, resource augmentation and growth in energy supply have failed to meet the ever increasing demands exerted by the multiplying population, rapid urbanization and progressing economy. Hence, serious energy shortages continue to plague India, forcing it to rely heavily on imports.

Planning Commission has noted that primary commercial energy demand has grown at the rate of six per cent between 1981 and 2001. Commercial primary energy consumption in India has grown by about 700% n the last four decades. The current per capita commercial primary energy consumption in India is about 350 kgoe/ year which is well below that of developed countries. Driven by the rising population, expanding economy and a quest for improved quality of life, energy usage in India is expected to rise to around 450 kgoe/ year in 2010. It is estimated that the total primary energy consumption is expected to about 412 MTOE (million tonnes oil equivalent) and 554 MTOE in the terminal years of the Tenth and Eleventh Plans, respectively (Planning Commission).

Energy intensity is an indicator to show how efficiently energy is used in the economy. The energy intensity of India is over twice that of the matured economies, which are represented by the OECD (Organization of Economic Co-operation and Development) member countries. India’s energy intensity is also much higher than the emerging economies—the Asian countries, which include the ASEAN member countries as well as China. However, since 1999, India’s energy intensity has been decreasing and is expected to continue to decrease.

The indicator of energy–GDP (gross domestic product) elasticity, that is, the ratio of growth rate of energy to the growth rate GDP, captures both the structure of the economy as well as the efficiency. The energy–GDP elasticity during 1953–2001 has been above unity. However, the elasticity for primary commercial energy consumption for 1991–2000 was less than unity (Planning Commission). This could be attributed to several factors, some of them being demographic shifts from rural to urban areas, structural economic changes towards lesser energy industry, impressive growth of services, improvement in efficiency of energy use, and inter-fuel substitution.

With a targeted GDP growth rate of 7 to 8 percent, and an estimated energy elasticity of 0.80, the energy requirements of India are expected to grow at 5.6- 6.4 percent per annum over the next few years. This implies a four-fold increase in India’s energy requirement over the next 25 years and India faces significant challenges to meet this.

Comprehending that the dependence on energy is expected to increase further to achieve the targeted GDP growth rate of 8% during the Tenth Five-year Plan, the Government of India has granted high priority to the energy sector. The total outlay on energy in the Tenth Five-year Plan has been projected to be 4.03 trillion rupees at 2001/ 02 prices, which is 26.7% of the total outlay. An increase of 84.2% is projected over the Ninth Five-year Plan in terms of the total plan outlay on energy sector. The Government of India in the mid-term review of the Tenth Plan recognized the fact that under-performance of the energy sector can be a major constraint in delivering a growth rate of 8% GDP during the plan period. It has, therefore, called for acceleration of the reforms process and adoption of an integrated energy policy.

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 power.

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.

Future Scenario

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.

Energy Security

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.

To alleviate 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 Energy Security.

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 defense issues
• Creating infrastructure to meet the demands for coal, petroleum products and natural gas
• Rationalizing tariff and pricing policy to promote investment
• 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 sub sectors.

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 energy efficiency

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.

To know more about energy supply and demand in India and issues that confront the country, refer to the sector overviews:

• Power

• Oil & Gas

• Coal

• Renewable energy

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